B.C. economy, finances well positioned despite credit downgrades

COVID-19 cases rising again. New restrictions. Credit rating downgrades. Is this the beginning of the end of B.C.’s reign atop provincial economic growth standings?

We don’t think so. In fact, we expect Canada’s westernmost province to continue to be a growth leader in the coming years.

B.C.’s performance before COVID-19 was impressive. During 2015–19, full-time employment rose more in B.C. than in any other province, and real growth lagged behind only Prince Edward Island.

Strong economic gains translated into strong financial results, as B.C. reported six consecutive surpluses between 2013–14 and 2018–19 and held top-notch AAA credit ratings from the major agencies. COVID-19 brought that run to an end, but 2020’s 3.8% contraction was still the lowest outside the Maritimes, enabled by relative control of COVID-19 and a high share of remote-capable industries.

Early data indicates that B.C.’s recovery is off to a strong start versus other Canadian jurisdictions. Total employment and home sales growth lead the provinces. B.C. ranks third in wages and salaries, imports and population growth and fourth in exports. In fact, among the major monthly indicators we monitor, B.C. is the only region to rank no lower than sixth in any category so far this year.

First-half price surges for the province’s range of commodities have no doubt contributed to that start, but we’re also optimistic about the medium-term outlook. Lead, nickel, zinc and copper ore mining was the province’s third-largest merchandise trade sector last year; while prices for copper in particular have cooled amid new fears about the Delta variant, the latest Scotiabank forecast assumes that values of the red metal will reach a record US$5 per pound by mid-decade as green energy demand ramps up and a dearth of major projects keeps the market tight.

We also expect natural gas, gold, silver and aluminum values to remain well supported in the next several years and work on the LNG Canada megaproject continues in Kitimat.

But B.C. is more than a natural resources producer; it’s also a growing technology sector hub. Though not yet as large an employer as those south of the border, B.C. high-tech employment growth outpaced that of major U.S. hubs in California, New York and Texas in the decade before COVID-19.

The sector – which includes positions in services and advanced manufacturing – is not only relatively lockdown-resilient but it is also productive, with wages more than 70% higher than the province’s all-industry mean in 2019. And in 2020, B.C.’s information and communications technology industry output rose by 5.6% – a striking result given the whole-economy decline, and the strongest advance by that sector in any province.

With a relatively strong recovery underway and solid prospects for B.C.’s major industries, last month’s public accounts – which revised last year’s deficit $2.7 billion lower than forecast – could be a sign of things to come. Budget 2021 linked every 1% in nominal GDP with a fiscal impact of $150 million to $250 million; based on that number, even nominal GDP growth of 10% in 2021 – well below the end-August private-sector average forecast – could mean balance improvements approaching $1 billion this year.

Characteristically, the plan also included significant prudence, with $2 billion in forecast allowances and general program contingencies this fiscal year.

Upside potential aside, B.C. maintains a strong fiscal position relative to its provincial peers. Recent rating action highlighted forecasts of a COVID-19-induced surge in borrowing over the next several years, but the province’s net debt burden is expected to exceed only that of Saskatchewan in the next two years. Its forecast interest costs as a share of revenue are the lowest in Canada, and in line with recent history. Finally, recent downgrades notwithstanding, B.C. still enjoys the strongest credit ratings of any province. • 

Marc Desormeaux is a senior economist at Scotiabank.