Canada may avoid a full-blown recession, but it is facing a protracted economic slowdown, with B.C. expected to be hit especially hard due to higher mortgage lending rates and high consumer debt.
“There is a lot of fear about a deep recession coming in Canada, but we are only expecting a mild slowdown in the second half of the year,” Richard Forbes, senior for the Conference Board of Canada, told BIV News.
According to the Conference Board’s new three-year outlook, B.C., along with most other provinces in Canada, is in for a protracted economic slowdown, with population growth – driven mainly by immigration – masking a fundamental lack of business productivity.
The outlook projects B.C.’s economy will grow this year by an anemic 1.1 per cent, followed by 1.5 per cent in 2024 and 2.8 per cent in 2025. Ontario is facing similar contractions, with GDP growth in 2023 expected to be 1.3 per cent, one per cent in 2024 and 2.7 per cent in 2025.
“Whether Canada’s economy is technically in a recession (defined all-too-often simplistically as two consecutive quarters of negative real growth) in the short term is not the point,” the outlook states. “The net result will be an economy underperforming relative to pre-pandemic times.”
The Conference Board does not expect Canada’s economy to be fully firing on all cylinders again until 2026.
“With the crash, recovery, and stall in the recent past and near-term future, we don’t expect per capita real GDP in Canada to get back to pre-pandemic levels from the fourth quarter of 2019 until some time in 2026,” the outlook predicts. “Of the provinces, only Quebec and British Columbia will even reach, let alone rise above, that benchmark by the fourth quarter of 2025.”
Alberta is expected to post relatively strong growth this year -- 2.7 per cent – though that is expected to moderate in 2024 to just 1.9 per cent.
“The province’s resilience is in part driven by its sustained population growth, which has translated into strong employment gains,” the outlook explains. “The population is expected to increase by 3.9 per cent this year thanks to record-breaking migration numbers since the second half of 2022.”
But the report also notes that contributions to GDP by population increases mask the fact that business productivity and investment remains low in Canada.
"The population boost, both in permanent and non-permanent residents, has filled labour markets and satiated job vacancies, but with little immediate impact on output per worker," the outlook remarks. "Population numbers have distorted the headline economic numbers, making output look better than it really is."
In 2022 and into 2023, Canada and the U.S. experienced inflation levels not seen since the late 1970s and early 1980s. The cure for inflation is higher interest rates, and those higher borrowing rates are now working their way through the system, as mortgage terms expire, “sapping consumers’ future spending potential.”
“Tighter monetary policy has helped bring down inflation, but the bell is now tolling for a growing share of mortgage holders to renew at higher rates,” the outlook warns. “For British Columbia’s debt-saturated households, the interest bite will force consumer spending down and limit financial flexibility.”
“One of the reasons why B.C. is near the bottom, in terms of growth this year, is because they’re going to be hit harder by interest rates," Forbes said.
B.C.’s economy has also been plagued this year by labour unrest, with a port strike that lasted nearly two weeks, and wildfires that would have temporarily shut down logging operations and other resource activities.
“These industrial and natural conflagrations are also happening amid the backdrop of an increasingly distressing consumer outlook,” the outlook warns.
It also points out that major projects that have employed thousands of workers -- like the Trans Mountain and Coastal GasLink pipelines -- are expected to be completed by the end of this year, which will contribute to slower growth in 2024.
The outlook does offer some optimism for certain sectors of B.C.’s economy, however, notably tourism and liquefied natural gas.
“Tourism is picking up as a broader swath of international visitors returns. Construction on major energy projects and pipelines is ongoing, with more investment in LNG capacity slated for the next few years.”
Once B.C. makes it through the doldrums, its longer term prospects for "really bright," Forbes said.
"There's plenty of investment in the tech sector, and B.C. remains a really attractive destination for migrants coming," Forbes said.
