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Robust economy ailing after bout with pandemic

The year 2019 seems like a distant memory in the COVID-19 era, but provincial economic accounts data confirmed that, heading into 2020, B.C.’s economy remained among the strongest in the country.
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The year 2019 seems like a distant memory in the COVID-19 era, but provincial economic accounts data confirmed that, heading into 2020, B.C.’s economy remained among the strongest in the country.

On an expenditure basis, real gross domestic product (GDP) expanded by 2.7% compared with 1.9% nationally and was on par with 2018’s performance.

B.C.’s solid gain last year was achieved despite weakness in most key segments. Household consumption growth decelerated sharply to 1.7% in 2019, down from 2.8% in 2018. This was the slowest expansion since a 0.3% gain in 2009.

Slower consumption growth was driven by fewer vehicle sales, weaker ancillary spending related to housing, and flat non-durable goods purchases.

Household consumption makes up about 60% of GDP. Overall consumption expenditures growth of 2.1% was propped up by stronger government spending, which rose 3.1%.

Housing was a drag on the economy. Investment in residential structures shrank by 1.5% during the year, following a 2.5% contraction in 2018.

Trade was also dismal. Real export growth slowed to 0.9% from 3.5% in 2018. This was partly offset by slowing imports, which decelerated to a gain of 2.7%, from 3.3% in 2018. 

Weaker growth across key segments was offset by a huge increase in investment spending. Private-sector investment jumped 22% from 2018 on a 35% increase in structure investment. Machinery and equipment was flat. Private investment contributed about 74% of headline growth. This surge reflected build-out of liquefied natural gas projects. Government investment, which gained 8.8%, also outperformed, reflecting investment in schools, hospitals and other infrastructure.

Nominal GDP came in at 4.3%, compared with 4.9% growth in 2018. Economic growth largely accrued to employees during the year. Aggregate wages and salaries were up 5.7%, as net operating surplus or profits fell 7%.

With mixed gains in 2019, headline growth marked a modest handoff to 2020 – but a short-lived one, as COVID-19 ravaged the economy this year. Economic output is forecast to contract by nearly 6% in 2020 due to the pandemic-driven shuttering of parts of the economy earlier in the year and the continuing effects of health measures. Rising COVID-19 cases in the fall and winter will pause the recovery phase observed since May, but growth is forecast to reach about 4% in 2021. •

Bryan Yu is deputy chief economist at Central 1 Credit Union.