The Economic Forecast Council has lowered its five-year economic growth forecasts for the province.
By the Numbers
Some B.C. economists have lowered their five-year economic growth forecasts for the province. Several key factors behind this decision are the weakening U.S. economy, the high Canadian dollar and labour shortages in the construction industry.
In preparation for the 2008 budget, B.C. Finance Minister Carole Taylor consulted with the Economic Forecast Council on Dec. 7.
The council is comprised of 12 independent economic experts from various banks and private-sector forecasting groups.
These experts provided economic growth estimates for the individual years 2007, 2008 and 2009, as well as an average forecast for the years 2010 to 2012.
“British Columbia’s economy will continue to outperform the Canadian average and grow at a healthy rate, but clearly there are challenges that are lowering the economic growth forecast for British Columbia,” she said.
When compared with council estimates from December 2006, the five-year economic growth forecast for B.C. has been lowered.
The council now predicts that B.C.’s real gross domestic product will increase by 3.1 per cent in 2007, down from their previous forecast of 3.4 per cent.
Economic growth in 2008 is expected to increase by 2.9 per cent, down from 3.3 per cent in their previous forecast.
The forecast for 2009 to 2011 has also been downgraded slightly.
There are several key factors that are responsible for the lowering of the economic forecast, said Jock Finlayson, who is a member of the council and the executive vice president for policy at the Business Council of B.C.
“There are three reasons for the slowdown in the rate of expansion of the B.C. economy,” he said.
“The first reason is the weaker U.S. economy. The outlook for growth in the U.S. for 2008 and 2009 is much lower than a year ago, which impacts forestry exports and tourism.”
Finlayson said the second reason for slower growth is the high Canadian dollar, which also has a negative impact on exports.
The third reason behind the financial projection is the supply of labour, which is a constraint or limitation on the growth of the construction sector and the overall economy.
“We have been growing above the capacity of the economy for the last three years. The long-term sustainable growth rate in B.C., which is based on historical increases in the labour force and productivity, is between 2.5 and three per cent,” he said. “A mature economy can’t grow above the long-term average for long. We are reverting back to normal levels of growth.”
He added that B.C. is still growing faster than the national average.
Helmut Pastrick, who is a member of the council and the chief economist with the Credit Union Central of B.C, agreed that the weak U.S. economy and the strong Canadian dollar were key factors in the lowering of the B.C. economic forecast.
However, Pastrick said, these factors will have little or no impact on the construction sector.
“There will be a slight indirect impact on construction to the extent that other industries, such as forestry, are experiencing lay offs and temporary closures,” he said.
For Pastrick, the shortage of labour prevailed through 2006 and 2007 and has just become part of the operating environment in B.C.
He predicted there will be an easing in the labour shortage when the economic boom subsides after 2010.
The construction of Olympic venues and power projects will generally be completed by 2010, while housing construction is expected to level off in the next four years.