B.C. economy cooling quickly as labour shortages squeeze growth: TD

Economic expansion expected to fall a full point to 3.8 per cent this year

Construction workers in Vancouver | Rob Kruyt, BIV

There was little expectation going into 2022 that B.C. would be able to maintain last year’s surge of economic growth following in the wake of initial pandemic paralysis.

But the province now appears to have become a “victim of its own success,” according to TD economists who forecast growth will fall a full point to 3.8 per cent in 2022 compared with a year earlier.

“A strong recovery from the pandemic has fuelled intense labour shortages. This challenge is likely to keep the province from achieving even stronger growth this year,” Friday’s report stated.

The West Coast has added jobs for seven straight months as of February, with unemployment now sitting at 4.9 per cent.

TD predicts the unemployment rate will fall to 4.6 per cent this year after hitting 6.5 per cent in 2021. By 2023, it’s projected to begin crawling upward again to 4.7 per cent.

Earlier this month the Bank of Canada hiked its overnight rate for the first time since 2018 – a vote of confidence for the strength of the economy as well as an effort to tamp down on record inflation.

Central banks across the globe slashed rates to record lows in the wake of the pandemic to inject cheap capital into the economy and keep investment flowing. But that flood of capital, coupled with unprecedented supply chain disruptions, helped drive Canada’s annual rate of inflation to 5.7 per cent as of February – a level not seen since August 1991.

“The multi-decade high inflation that we’ve seen is set to escalate further in the coming months due to the knock-on effects of the evolving Russia-Ukraine conflict. The invasion of Ukraine is exacerbating the pinch on consumers and businesses largely through its impact on energy and food prices,” the TD report stated.

But economists at the bank see elevated natural gas prices prompting an increase in production, which could be a boon for B.C.

“Construction activity will also draw support from rebuilding efforts after the devastating floods in late 2021 and the ongoing, large-scale LNG Canada and Site C hydroelectric dam projects,” the report stated.

The Business Council of B.C. (BCBC), meanwhile, projects the provincial economy will expand 5 per cent this year – down from the 5.8 per cent projection made prior to last year’s devastating floods.

The 13-member Economic Forecast Council, which includes TD and BCBC economists, forecasts growth of 4.2 per cent for this year.