While somewhat stale at this point, Statistics Canada’s release of expenditure and income estimates for 2021 reinforced what was already known as a stellar year for growth in B.C.
Provincial economic growth reached 6.2 per cent, which was strongest among large provinces and third highest among provinces. The latest data also pointed to a contraction of three per cent in the economy during COVID-19-ravaged 2020, which was shallower than previous estimates.
Real GDP growth in 2021 was largely driven by the household sector with a surge in consumption and residential investment growth. A strong labour market recovery, surging housing market, net interprovincial in-migration and tourism contributed to a 7.3 per cent gain in household consumption, with double-digit growth for semi-durable goods (20 per cent) and durable goods (10.8 per cent). Goods consumption rebounded above 2019 levels. Services rebounded 6.8 per cent to near-2019 levels.
Soaring home sales, which drove transaction activity and renovations, alongside strong new home construction pushed residential investment up 14.6 per cent. Non-residential investment in buildings and machinery and equipment remained historically elevated despite growing at a more modest 5.2 per cent.
Meanwhile, and not surprisingly, public-sector spending was also a key driver of growth. Real current spending by government rose 7.9 per cent after a near four-per-cent increase in 2020, as pandemic-driven activity rose. Capital investment jumped 15.6 per cent, reflecting major project investments and, likely, increased needs due to the pandemic.
Final domestic demand rose faster than headlined GDP at 8.1 per cent, as trade was a net drag on economic growth. Exports rose 3.2 per cent, driven by sales of goods to international markets as demand for resources soared during the global economic recovery, but this was offset by higher imports of 10.3 per cent. That said, this latter jump should not be seen as something negative as import growth reflects demand observed through the increase in consumer spending and capital investment.
Strong inflationary pressure and high commodity prices drove nominal GDP up by 14 per cent in 2021. This was the strongest annual gain on record since at least 1982. Housing construction costs (up 14 per cent) and robust export prices (up 16 per cent) rose due to favourable resource prices in sectors like forestry and mining, which were key drivers of the increase.
On an income basis, corporate profits captured more of the net gain in income with growth of 26.3 per cent following a 19.3-per-cent increase in 2020. Rising employment and higher wages contributed to growth of 12.9 per cent in wages and salaries. Strong income gains have led to an improved fiscal position for the provincial government as tax revenue and natural resource royalties soared. B.C. household net savings fell to six per cent from 10 per cent in 2020, but compared to negative values prior to the pandemic.
Of course, 2021 marked an extraordinary year as the economy worked to recover from the pandemic. Growth is forecast to reach about 3.2 per cent this year and 1.3 per cent in 2023. The latter reflects a more pronounced slowdown due to the combination of high inflation, interest rates and risks of a significant global economic downturn. Housing market activity has already deteriorated due to higher interest rates while a slowdown in consumer demand will follow. •
Bryan Yu is chief economist at Central 1 Credit Union.
