B.C.’s economy is likely to slow in 2017 but remain solid, despite a pull-back in home prices and a hit to the forestry sector as U.S. and Canadian negotiators struggle to agree to a new softwood lumber agreement, according to Central 1 Credit Union chief economist Helmut Pastrick.
Pastrick foresees rising mortgage rates, a waning Canadian dollar and a delay in the federal government’s infrastructure spending.
Then, of course, there are the wild cards, not the least of which is what U.S. president-elect Donald Trump will do.
The fickle president-elect has hinted that he wants to renegotiate the North American Free Trade Agreeement. Were that to happen, B.C.’s exports and its economy could suffer.
The BC Liberal government is also set to reveal its next budget in late February. Pastrick said the pre-election document could include tax changes “or some other giveaways and goodies – grants or credits.”
His forecast largely anticipates a status quo on policies, but if the New Democratic Party of British Columbia wins the election, there could be a shift in government policies that Pastrick said could affect the economy.
“There’s also the possibility of unexpected external shocks. B.C. is a small economy, as Canada is on the global scene, and when negative developments occur that are significant outside our borders, they always impact us.”
Pastrick projected that B.C.’s economy will slow in 2017 to the point where real gross domestic product (GDP) growth is 2.5%. That would be down from what he expects will be 3.5% in 2016.
“There will be a mild housing correction that will pull down GDP growth,” he said. “New housing starts are coming off a very high level in 2016, at somewhere around 41,000 units for the province. We think that will fall into a range in the mid-30,000s.”
Home prices have just started to drop, and Pastrick thinks prices will fall about 10% from their 2016 peaks.
Making things even more stressful for homeowners will be rising mortgage rates. Canadian banks have already hiked rates, with the Royal Bank of Canada raising its five-year mortgage rate to 2.94% from 2.64% before Trump’s November 8 win. Toronto-Dominion Bank matched that rate.
“It will be an expensive housing market,” Pastrick said. “On the rental side, it will remain tight so there won’t be much relief.”
He said he doubts that the Organization of Petroleum Exporting Countries agreement to cut production and help end the global supply glut will go as planned.
If excess supply pushes the price of oil down from current levels and the U.S. Federal Reserve continues on the path it laid out on December 14 – to raise interest rates by a quarter-point on three separate occasions in 2017 – Pastrick said the Canadian government could cut interest rates from what is now 0.5%.
In November, federal Finance Minister Bill Morneau announced $81.2 billion in new infrastructure spending during the next 12 years, including $8.9 billion that he expects to spend before the 2019 election.
But Pastrick said the time lag in moving from that announcement to shovels “can be considerable.”
He added that he doubts any of the money will be spent in B.C. in 2017.
Similarly, Pastrick said it’s unlikely Kinder Morgan will have shovels in the ground in 2017 for its plan to triple the capacity of its Trans Mountain pipeline through B.C. to Burnaby. A more likely major project to start construction in 2017, he said, is Woodfibre LNG Ltd.’s planned liquid natural gas facility near Squamish. •