BC Business
Experts are preparing for a perfect storm this year—or at least long periods of rain
After years of dodging the worst that the business cycle had to throw at us, British Columbians are in for a comeuppance in 2024. Inflation and higher borrowing costs—unaccompanied by economic growth and job creation—are going to take a toll on the budgets of households, companies and governments alike, our panel of prognosticators predicts. The housing market will continue its slump. Unemployment will rise (though from a very low base). The wind-down of northern megaprojects will leave an economic hole that no new investment is rushing to fill.
So yeah, we have our share of challenges to overcome. But come 2025, and with some grit and smart policy, we’ll be in a better place. Here’s how some of the province’s sharpest economic minds see things playing out.
The halting descent of Canada’s Consumer Price Index from its post-pandemic peak of 8.1 percent in mid-2022 has become a tense tennis match for market watchers, reassuringly down one month, then alarmingly back up the next.
At 3.8 percent, the latest gauge of annualized price increases, from September, is “pretty darn close to the upper end of the Bank of Canada’s target range, but it’s going to be a bumpy ride from here down to 2 percent,” says Ryan Berlin, senior economist and vice-president of Vancouver real estate forecasting group Rennie Intelligence. Domestic demand may cool off—and there are strong signs that is happening—but there are also exogenous factors that contribute to the cost of consumer goods and services, such as oil prices. Central 1 Credit Union pins the provincial inflation rate at year-end at 2.9 percent.”
“Even if the Bank [of Canada] doesn’t raise rates again, higher rates will still have significant implications for the economy,” says Berlin. Homeowners who had been paying, in some cases, sub-2-percent mortgage rates are rolling over into 7 percent. That will take a huge bite out of household budgets.
Indeed, the rate shocks will continue for another four years as people on five-year fixed terms renew and an ever-wider slice of the populace feels the pain. “The mortgage interest rates get worse, not better, from here,” agrees Business Council of B.C. chief economist Ken Peacock. Landlords will pass at least some of their higher financing costs on to renters, opting to raise rents even for longtime tenants. People needing a new vehicle will start feeling nostalgic for those days of 0-percent financing.
“People are tightening their belts right now. It’s happening,” Berlin says. He sits on the side of economists who think the Bank of Canada has overshot its monetary tightening exercise and will end up reversing course sooner rather than later, perhaps as early as March. The tipping point will come when inflation dips below 3 percent, the upper end of the central bank’s target range. After that, he foresees the overnight rate coming down gradually, in quarter-point increments, to 3 percent (from a current 5 percent) by mid-2025. But others insist the wait for lower rates will be longer.
That so-called “stagflation” scenario is affecting jurisdictions around North America, but B.C. has reasons to be especially fearful:
1. Higher interest rates hit B.C. harder than other provinces as a result of our higher household debt loads, due mostly to higher home prices. Whereas a family in Vancouver might have a $1-million mortgage, its counterpart in Calgary will only have a $500,000 mortgage, and will be servicing that with a slightly higher household income, Central 1 Credit Union chief economist Bryan Yu explains.
2. Since 2019, the province has been buoyed by unprecedented investment in the LNG Canada, Coastal Gaslink, Trans Mountain Expansion and Site C projects. But construction of these megaprojects is now winding down, leaving an economic hole. “What’s going to fill it is very much a question,” Peacock says.
3. B.C.’s relatively high exposure to the Chinese market will hurt exports here more than elsewhere, TD Economics observed in its fall Provincial Economic Forecast.
“After expanding at a nation-matching 1.2 percent this year, we expect B.C.’s economy to endure a more pronounced downswing in 2024,” the TD Economics team wrote. It foresees real GDP growth in the province of just 0.5 percent and employment growth of 0.1 percent, both well below the rate of population growth.
For its part, the provincial government, in its fall budget update, projects 0.8 percent growth in 2024. That doesn’t leave a lot of margin in case of unexpected shocks. Besides, it won’t take a textbook recession to make times feel tough, says Greater Vancouver Board of Trade president and CEO Bridgitte Anderson: “There is significant concern from business that we are entering a high-cost, low-growth environment next year.”
“There’s a very good chance we’re in a recession right now. We just don’t know it,” adds Berlin. GDP growth was negative in the second quarter, and as of the time of writing the Q3 number was not yet available.
“We need to plan, and to act, for what will likely be limited economic growth in the coming 12 months,” says Fiona Famulak, president and CEO of the B.C. Chamber of Commerce. “This means governments need to focus their efforts on policies and programs that spur innovation, boost productivity and make it possible for businesses to weather any economic turbulence ahead.”
“There are growing signs that earlier labour market tightness is rapidly easing,” RBC Economics noted in a provincial economic report in September. “Job vacancies are down 28 percent from a year ago—the steepest fall among the provinces… Construction employment has plummeted 17 percent since January.”
Though unemployment remains low by historical standards, the job market is likely to soften further in 2024 as the major projects in the north of the province reach completion and job losses continue in the forest industry and related manufacturing. TD Economics projects an average unemployment rate for the year of 6.4 percent.
Beginning last April, “we’ve seen a very clear shift in labour market conditions,” Berlin says. Employment growth has slowed, the unemployment rate has risen, job vacancies have gone down and EI claims have gone up.
In one sense that’s good news, he says. At the end of the pandemic we were in a state of disequilibrium in the labour market and are now moving toward a better balance between the supply of and demand for workers. In the meantime, though, the job market statistics are going to look increasingly ugly.
As it is, public-sector hiring has masked a 1.1-percent drop in private-sector employment over the past year, Peacock points out. “B.C. has seen no job growth in private-sector payrolls since January 2019.”
The job growth that is coming is from the public sector and from self-employment, which to Yu indicates a deterioration in job quality. Expect more and more workers to bid farewell to remote and hybrid work arrangements as higher unemployment gives employers the upper hand, he says. “We’re going to see more businesses looking to bring their people back on site more frequently.”
The biggest factor keeping the Canadian economy from tipping into recession is unprecedented levels of immigration. B.C. accepted a record 150,000 international migrants in 2022 and at the time of writing was on track for 180,000 in 2023. “B.C.’s population growth is currently running at a four-decade high of 3.1 percent, sustaining aggregate demand for goods and services,” RBC Economics noted in a report in September. With birth rates low and interprovincial migration turning negative, virtually all of that increase is coming from international arrivals.
Most in business support the idea that high immigration levels are necessary in order to counteract low birth rates, the aging of our population and the slow and steady shrinking of the workforce. The B.C. Chamber’s Famulak puts it this way: “We are all navigating an acute skilled labour shortage for which there is no single solution. Through 2024 and beyond, we need immigrants, we need to look at how to keep older people in the workforce, we need to tap into the under-represented and marginalized communities.”
But the influx, supported by the federal Liberal government’s aggressive immigration targets, is contributing to the shortage of housing and putting a strain on infrastructure such as transportation and hospitals. It’s also masking a decline in per-capita economic output. One scenario to consider for 2024 is a breakdown of the Liberal-NDP entente that has kept the minority Liberals in power. The opposition Conservative party, which has a wide lead in polls, could opt to scale back the Liberals’ immigration targets should it come to power.
Even population growth, however, can’t sustain the housing market in the face of today’s elevated financing costs. “There’s this growing segment of sellers who have variable-rate mortgages or higher fixed rates and they’re getting uncomfortable,” Berlin says. Investors are consolidating their property portfolios. Owner-occupiers are contemplating downsizing. More inventory is likely to come on the market just when prospective buyers are putting their plans on hold.
For that reason, home prices will at best stagnate for the foreseeable future. Some housing types will do better than others. New migrants tend to live in apartments in cities and denser suburbs, Berlin notes. Luxury and recreational properties, by contrast, will languish. And as long as prices stay flat or drift downward in the resale market, there will be little demand for developers’ presale offerings. There’s still a good amount of housing under construction, but once that’s finished, there could be a long gap in the new housing pipeline.
“The less expensive housing is where the activity is going to be focused,” Berlin says.
Like an unwelcome ghost of Christmases past, labour unrest rose from the dead both at home and abroad in 2023. The strike at the Port of Vancouver disrupted an estimated $11 billion worth of trade, while the writers’ and actors’ strikes in Hollywood curtailed B.C. film and TV shoots. And our prognosticators expect the rocky relations between workers and employers to continue. Inflation and a tight job market, naturally, are driving higher wage demands that companies and public-sector entities are seldom in a position to satisfy. But also the pandemic destabilized the employment landscape, creating expectations among employees for more flexible work conditions that often conflict with employer priorities, notes GVBOT’s Anderson. The only thing likely to quell the job action would be a steep rise in unemployment.
Wildfires and drought again disrupted industries including agriculture, forestry, transportation, tourism, energy and utilities in 2023, in what is becoming an increasingly familiar pattern. “Water is a big lingering issue for us,” says Paul Pryce, director of policy for the B.C. Agriculture Council, a coalition of 28 different commodity-producing associations. The provincial government is working on a Watershed Security Strategy, but if getting by on less water is the new normal, investment in better irrigation infrastructure and conversion to more drought-tolerant crops and methods of raising livestock will be required.
B.C. has challenging terrain for building and maintaining infrastructure at the best of times—and more of it, on a per-capita basis, than most jurisdictions, Peacock says. That will continue to make the province uniquely vulnerable to natural disasters, whether or not they are related to climate change. The best governments and businesses can do is to invest in resilient infrastructure and learn adaptive responses.
There are still a few causes for optimism in 2024 and beyond. In the mineral exploration sector, there is ever more interest in critical minerals essential to the energy transition, including copper, nickel and cobalt. While trade negotiations with India have been put on hold following the diplomatic spat over the murder of Sikh activist Hardeep Singh Nijjar in June, the trade agreement Canada concluded with South Korea in 2014 is providing new export opportunities, for B.C. fruit and berry growers, for example. And there are ongoing investments taking place in life sciences and cleantech.
Looking beyond this year, Central 1’s Yu expects the picture to brighten. “When we move into 2025, I think we’ll see some of the fruits of those [northern megaprojects] coming through,” he says. LNG originating in B.C. will give exports and productivity a shot in the arm while spurring natural gas production in the Northeast. Meanwhile, falling interest rates and pent-up demand should revive the housing market.
Anderson points to high-profile sporting events, including this year’s Grey Cup, the Invictus Games in 2025 and the 2026 FIFA World Cup, as chances to burnish B.C.’s brand. “We’re going to have the eyes of the world upon us over the next few years and we have a real opportunity to showcase our strengths,” she says.