VANCOUVER (NEWS 1130) — The B.C. economy is expected to shrink by more than six per cent this year despite a slight recovery from the COVID-19 pandemic shutdown, according to Central 1 Credit Union.
The recovery is expected to persist beyond next year, with continued slow growth, says a new report from the credit union.
Employment, housing, and retail spending lead the economic recovery in B.C., according to Central 1 deputy chief economist Bryan Yu, who expects 2020 to remain a series of lowlights with contractions in nearly all areas of the economy.
“Ongoing recovery is set to persist through 2021 and beyond – aided by major construction projects, such as the LNG Canada project and the Site C dam, which were initiated prior to the pandemic – but will remain below pre-pandemic levels into 2022,” Yu says.
Economists at Central 1 predict 2021 will bring economic growth of four per cent, with a return to pre-pandemic levels by early 2022, with the service industry the slowest to recover.
‘Unemployment to hover around 10 per cent’
The credit union feels the unemployment rate will hover around 10 per cent by the end of the year, gradually improving to six percent over the next three.
B.C has recovered more than half of the 400,000 jobs lost from February through April, but the unemployment rate is sitting near 11 per cent compared to five in February.
“The substantial rehiring spike due to re-openings of businesses closed by the pandemic were mainly part-time roles, whereas full-time employment has been slower to rebound,” Yu says.
“The unemployment rate is forecast to trend toward eight per cent by the end of 2020, but will still result in an average unemployment rate close to 10 per cent due in part to the quicker rebound in labour force participation.”
Employment growth is expected to decline by 7.1 per cent in 2020 and expand by 4.4 per cent in 2021 and by 2.3 per cent in 2022, moving employment back to pre-pandemic levels, according to the report.
“The housing cycle has been a huge surprise from what was anticipated at the early stages of the pandemic, and is likely propelled by a combination of pent-up demand in March and April, substantial cuts to mortgage rates and a shift in consumer preferences given the advent of work from home and constraints to leisure activities,” Yu says.
Housing starts to decline
However, housing starts are to decline by more than 20 per cent this year, to 34,700 units, and are only expected to rise modestly afterward.
The construction cycle will be tempered by fewer pre-sales than in prior years and by a slowing of B.C.’s population growth to one per cent this year and to 0.6 per cent in 2021, reflecting global travel restrictions and reduced processing of permanent residency applications, says the report.
Retail spending returned to near February levels in July after a 25 per cent drop through April.
“Pent-up demand surely played a role in the uptick, particularly for vehicles, clothing and other discretionary items,” Yu says.
“Retail spending is also only a part of total consumer spending, and a lack of spending options on restaurants, entertainment and tourism is likely to be reallocated to goods, therefore the gains from pent-up demand will likely retrace.”
B.C. fared well in manufacturing
On manufacturing and goods-exports, B.C fared well compared to other provinces due to lower exposure to the hardest-hit sectors — automotive production and energy.
But manufacturing activity dropped by 11 per cent from 2019 due mostly to sawmill closures through that year.
Yu adds lumber prices have unexpectedly surged on demand for renovations and a surprisingly robust housing market in Canada and the U.S.
Global growth is set to experience a modern record contraction (4.9 per cent) in 2020, and the end of emergency fiscal supports will lead to a drag on economic recovery, adding to the slow growth scenario is the emergence of greater trade and political uncertainty between the U.S. and China, Yu says.
According to the report, B.C. exports are forecast to rebound 4.5 per cent in 2021 and by 5.5 per cent in 2022, following an 11 per cent drop this year, “reflecting a combination of stronger global activity and rising tourism flows.”