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Quarterly Economic Update – Q4 2018

February 12, 2019

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British Columbia

After enjoying booming growth in 2016 and 2017, British Columbia’s economy has cooled slightly in 2018 and the trend is expected to continue into 2019, according to TD Bank. While the average growth rate in BC was 3.5% for 2016 and 2017, TD Bank has estimated the growth rate for 2018 was approximately 2.3% and forecasts the rate for 2019 to be 2.0%.

BC Graph

BC’s housing market and growing labour market constraints have been the main source of the economic downshift in 2018. While housing was a key driver of growth in the province in the last few years, the lack of affordability and an unsustainable pace of growth has now been countered by stricter mortgage qualification rules, higher interest rates and measures placed by the provincial and municipal governments.  According to RBC, the housing sector will remain soft going into 2019.

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[1] was 4.5% for 2019 and 2020. This shortage in labour supply could place upward pressure on wages; according to RBC, the average weekly earnings have increased over 4% compared to last year. Consequently, businesses will either ramp up productivity-enhancing investments or look internationally to fill this labour gap.

With the confirmation of LNG Canada’s $40 billion liquified natural gas project in Kitimat, TD Bank estimates the project will contribute to BC’s growth rate by 0.1% in 2019, with a more significant impact in 2020 of 0.6%. The project is anticipated to generate approximately 10,000 jobs.

The average forecast of Canada’s top five banks calls for British Columbia’s real GDP to grow by 2.4% in 2019 (Q3: 2.9%) and 2.7% in 2020. 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 2.1% in 2019 (Q3: 2.2%) before adjusting to 2.3% in 2020.


Canada’s economy stumbled in the final quarter of 2018 due to slumping oil prices and higher interest rates. While real estate had played a significant role previously, regulatory changes and higher interest rates have resulted in a drop in housing sales. According to RBC, housing sales are down 10% by the end of 2018.

Canada Graph

The average forecast of Canada’s top five banks calls for Canada’s real GDP to decline from 2.1% in 2018 to 1.8% in 2019 and 2020.

While the collapse of Canadian heavy oil prices and the decision by the Alberta government to curtail production will dampen near-term energy investment and exports, there will be substantial business investments outside the energy sector to fill this gap, according to TD Bank.

With the new United States-Mexico-Canada Agreement (USMCA) in place, RBC has noted a 4% increase in Canadian non-energy exports in Q3 2018 compared to Q3 2017. RBC expects US industrial production to remain strong in 2019, which will directly benefit Canadian non-energy exports. With the Canadian economy hitting a soft patch at the end of 2018, economists are expecting that Bank of Canada will likely delay the next rate hike until Q2 of 2019, pending the recovery of oil prices. RBC assumes the Bank of Canada will raise the overnight rate to 2.25% in Q3 2019.

Canada’s unemployment rate was 5.8% in 2018 and is forecast to remain unchanged in 2019 and 2020. Inflation[2] is expected to increase slightly from 1.9% in 2018 (Q3: 2.2%) to 2.1% in 2019 (Q3: 2.2%) and 2.2% in 2020.

The overnight target rate at the end of 2018 was 1.75% (Q3: 1.75%). The forecast of Canada’s top five banks call for an overnight target rate range of 2.00% to 2.25% by the end of 2019 and 2.00% to 2.75% by the end of 2020 (Q3: 2.0% to 2.75% by the end of 2019).

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

[2] CPI excluding the food and energy industries.


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