Quarterly Economic Update – Q2 2019

September 18, 2019

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British Columbia

After leading all provinces in growth in 2016 and 2017, the BC economy has experienced a marked slowdown in pace in 2018. Cooling in the housing market had a rippling effect across the service and manufacturing industries surrounding the housing sector. However, BC still finished strong in 2018 with a 2.3% growth rate, the third highest among all provinces.

BC average forecast 2019 Q2

The Vancouver housing market continues its trend in declining sales prices; benchmark prices are down 8.9% since June 2018. The housing downturn’s impact can also be observed through declining sales in building materials, furniture and motor vehicles. According to RBC, the cooling of the housing market is as what policymakers were hoping for in their policy changes in tackling greater Vancouver’s severe affordability issues.

To offset the decline in housing, BC’s economy remains unfazed given the surge in spending on major capital projects. Businesses plan to boost their capital expenditures by $4 billion in 2019, contributed largely by the $40 billion LNG Canada megaproject in Kitimat. Commercial real estate is also expected to counter the housing market downswing with non-residential investment up 21% in the first quarter of 2019 compared to 2018.

BC is expected to uphold its top-tier provincial growth ranking in Canada with projected real GDP growth rates of 2.4% in 2019 and 2.5% in 2020, according to RBC. The average forecast of Canada’s top five banks[1] calls for British Columbia’s real GDP to grow by 1.9% in 2019 (2019 Q1: 2.0%) and 2.4% in 2020 (2019 Q1: 2.5%). British Columbia’s consumer price index (“CPI”) was 2.7% in 2018 compared to the national average of 1.9%. Inflation is forecast to decline to 2.3% in 2019 (2019 Q1: 2.0%) before adjusting to 2.3% in 2020.

BC’s unemployment rate has averaged around 4.7% in 2018, the lowest among the provinces according to TD Bank. The lack of labour supply has been a major constraint for most employers in 2018 and this trend is expected to continue into 2019 and 2020. The average forecast BC unemployment rate by Canada’s top five banks was 4.7% for 2019 (2019 Q1: 4.6%) and 4.8% for 2020 (2019 Q1: 4.7%).

[1] TD Bank, RBC, Bank of Nova Scotia, BMO and CIBC.

Canada

Canada’s economy remained stagnant with realized real GDP growth of 0.3% in the last quarter of 2018. The first quarter of 2019 did not change significantly at real GDP growth of 0.4%. While falling
construction projects in the residential and non-residential sectors and the decline in exports have led to the softening in Canada’s economy, the fall was cushioned by domestic demand with spending in households and businesses.

Canadian average forecast 2019 Q2

According to TD Bank, the Canadian economy is expected to pickup in the second quarter of 2019 from healthy household income, recovery in housing markets and resumption of export activities.

The average forecast of Canada’s top five banks calls for real GDP growth of 1.4% in 2019 (2019 Q1: 1.5%) and strengthen to 1.7% in 2020. Unemployment rates are expected to remain consistent with those experienced in 2018 of 5.8%. The average forecast unemployment rate of the top five banks call for 5.7% in 2019 and 5.9% in 2020.

The overnight target rate at the end of 2018 was 1.75%. Given the uncertainties in the global economy and looming risks in US growth, the forecast of Canada’s top five banks call for an overnight target rate of 1.75% by the end of 2019 and 1.50% to 1.75% by the end of 2020 (2019 Q1: 1.75% to 2.25%).

 

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