B.C. economy forecast to lead provinces in 2021 as consumers ‘let loose’

Economists caution that ‘glitch’ in vaccine rollout could hamper big growth projections

Shoppers on Robson and Howe streets in downtown Vancouver | Rob Kruyt, BIV file photo

The Boxing Day sales might be over but it looks like Canadians will be ready to keep the economy chugging along well into the new year, according to forecasts from BMO.

“British Columbia continues to look like an outperformer," senior economist Robert Kavcic wrote in a Monday (January 4) note.

The province’s real GDP is pegged to expand 5.6% year-over-year over the course of 2021 — the highest among all provinces and above the national average of 5% growth.

The 5% projection for Canada would be the highest rate of expansion for the country since 2000.

The B.C. government, typically much more cautious in projections than private sector economists, pegs the province’s growth at 3% for 2021.

Unemployment on the West Coast is also expected to be the lowest in Canada by the end of the year, running at 6.5%.

BMO pegs this year’s national unemployment rate at 7.5%, while other big provinces such as Ontario (7.5%), Quebec (7%) and Alberta (9.1%) are all expected to lag behind the West Coast.

Economic growth will get off to a slow start, however, as first-quarter growth “will likely slow to a crawl” nationally during the colder winter months before bouncing back with 8% annualized growth in the second quarter.

The Canadian economy managed to expand 5% (annualized) in the fourth quarter of 2020.

“Major downside risks include a possible glitch in vaccine rollout (say, due to safety concerns), a more adverse mutation of the virus and the unwinding of fiscal stimulus later this year. One threat we probably won’t need to worry about is a spike in inflation (and interest rates), given the dynamic duo of lofty unemployment and advanced automation. More likely is a correction in asset prices if they run too far ahead of fundamentals, which could slow spending,” senior economist Sal Guatieri wrote in a separate note.

“Unlike last year, however, there is more upside for the economy. A smoother rollout of vaccines could lead to early herd immunity. As well, flush with savings, consumers could ‘let loose’ after spending a year in COVID prison.”

The optimistic projections come the same day as a new variant of COVID-19 forces the U.K. into a new lockdown expected to last weeks.

Canada suspended flights to and from the U.K. last month in response to concerns over the variant that appears to be far more contagious.

Guatieri said that with diminished desire to travel or even dine out, Canadians are now buying more goods “with anything tied to homes or recreation flying off the shelves.”

“Although some hard-hit service industries will struggle until most of the population is inoculated (likely in the summer), the goods-producing sector will continue to expand. Record home sales are bound to simmer down, but residential construction should stay aloft given record-low resale availability,” he stated, referring to national trends.

BMO also anticipates the loonie strengthening to $1.25 (US$0.80) vs. the greenback by late 2021. 

“This is near purchasing power parity, limiting its impact on the economic recovery though keeping the trade deficit large. The loonie should benefit from firmer resource prices … as global demand improves,” Guatieri said.