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Quarterly Economic Update – Q3 2018

October 31, 2018

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British Columbia

British Columbia has been one of Canada’s growth leaders for most of the past decade. According to TD Bank, a marked slowdown in growth has been observed in the BC market following several exceptional years, primarily due to a weakening housing market. Nonetheless, the province is still expected to lead economic growth amongst the various provinces in 2018.

BC Average Forecast – Canadian Banks

BC Economic Graph

Although a key driving force in previous years, BC’s housing market has seen drastic changes in 2018 with year-to-date home sales down 20% relative to the same period in 2017. This is mainly due to the compounding effects of affordability, rising interest rates and provincial regulations that have weighed on sales and residential investment in the province. Economists views the sector as unlikely to be a supportive force to the BC economy like it has been over the past several years. The Site C Dam project offers a partial offset to the slow-down in the housing market, with a potential $40 billion LNG Canada terminal investment in Kitimat awaiting a final investment decision. Any materialization of this project should have a significant and broad impact to the economy and alleviate depressed Canadian natural gas prices.

The average forecast of Canada’s top five banks calls for British Columbia’s real GDP to grow by 2.3% in 2018 (Q2: 2.4%) and 2.4% in 2019[1] (Q2: 2.0%).

The province’s labour market indicators show tightening conditions; BC’s unemployment rate is the lowest in Canada, averaging at just below 5% in 2018. The slowing of job growth due to workers being harder to come by and above-average wage growth are strong indicators that the economy is running at full employment. The unemployment rate is expected to remain fairly constant at 4.9% for 2018 and 2019.

The tight labour market is expected to translate into higher consumer spending. Retail sales have gone up by 3.8% year-to-date compared to the same period last year and are expected to continue over the forecast horizon with sales supported by income growth, which in turn, will provide an additional boost from scheduled increases in the minimum wage.

British Columbia’s consumer price index (“CPI”) was 2.1% in 2017 compared to the national average of 1.6%. Inflation is forecast to pick up slightly to 2.7% in 2018 (Q2: 2.4%) before declining to 2.3% in 2019 (Q2: 2.2%).

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


Canada’s economy shifted into higher growth in Q2 2018 with an annualized rate of 2.9% (Q1 2018 was 1.4%), in part reflecting the resolution of production disruptions that constrained activity at the beginning of the year. The average forecast of Canada’s top five banks calls for Canada’s real GDP to grow by 2.1% for both 2018 and 2019.

Canada Average Quarterly Forecast – Canadian Banks

Canada Economic Graph

Included in the top five banks’ forecast is a one-time boost to the accounting of GDP from the legalization of cannabis. On October 17, 2018, the consumption of cannabis will become legal. After this time, Statistics Canada will include both licensed and unlicensed cannabis activities in its official economic statistics. The expected boost to real GDP from the legalization of cannabis is expected to range between $7 billion to $8 billion, creating a lift in Q4 2018 and Q1 2019. However, economists warn that this lift is, in part, an illusion given that a portion of cannabis activities have previously existed in the Canadian economy, but wasn’t formally captured in most measures of economic output.

As Canada, US and Mexico has reached an agreement in key terms of their new trade deal: the United States-Mexico-Canada Agreement (USMCA), export of goods surged in the second quarter after shipments were held back by temporary disruptions at the start of the year. Likewise, imports of machinery and electronic/electrical equipment have been observed to trend upwards.

Canada’s unemployment rate was 6.3% in 2017 and is forecast to drop to 5.9% in 2018 (Q2: 5.8%) and 5.8% in 2019 (Q2: 5.7%).

Inflation[2] is expected to increase slightly from 1.6% in 2017 to 2.2% in 2018 (Q2: unchanged) and 2019 (Q2: unchanged).

The overnight target rate in Canada was 1.00% at the end of 2017, but given Canada’s economic conditions, economists expect continued rate hikes at a pace of one 25-basis points (0.25%) increase every six months. This brings the expected rate to 1.75% by the end of 2018 (Q2: 1.75%) and 2.0% to 2.75% by the end of 2019 (Q2: 2.0% to 2.50%).

[2] CPI excluding the food and energy industries.


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