Economists take wait- and- see attitude to B. C.’ s forecast
Important variables could dramatically change the outcome for better or worse
Thomas Carlyle famously dubbed economics the dismal science, but watching a dozen economists dole out budget- making advice to Finance Minister Mike de Jong on Friday I noticed that not only was the exercise not entirely dismal, it was also not really science. It seems to have at least as much in common with fortune- telling
The headline story from the 13th annual session of the B. C. Economic Forecast Council is that these leading economists have downgraded their slightly cheerier predictions of 10 months ago.
They now expect B. C.’ s growth to come in at 2.1 per cent this year, 2.2 per cent next year and 2.6 per cent in 2013. That’s down from a forecast of 2.2 per cent, 2.5 per cent and 2.7 per cent, but better than what is expected for most of the country.
But don’t imagine that anyone thinks these new numbers are hard and fast.
For one thing, individual predictions varied widely — from 1.7 per cent this year ( Helmut Pastrick of Central 1 Credit Union and Derek Burleton of TD) to 3 per cent in 2014 ( Carl Sonnen of Infometrica).
For another, no one asserts their number is necessarily correct — just that they think it’s more likely than any other given number.
And finally — as is implied by the fact virtually all of them have changed their minds since January — it all depends. There are some important variables that could dramatically change the outcome for better or for worse. Among them:
• Resource developments, especially facilities to export LNG, could go ahead. Or not.
• The U. S. could continue on the road to recovery and deal effectively — or at least adequately — with the looming fiscal cliff. Or not.
• Europe could muddle through its sovereign debt crisis without too much further damage. Or not.
• The housing market could hold reasonably steady. Or not.
• Rising household debt could be made unmanageable by higher interest rates. Or not.
• Demographic challenges may be well handled by such things as attracting the right newcomers and, especially, making our own workforce more productive. Or not.
• The transition from HST to PST could go smoothly and its adverse impacts could be mitigated by other tax policy. Or not.
• Skills training could be stepped up to meet demand. Or not.
• Slowing demand in Asia for B. C.’ s exports could turn around. Or not.
So the session — the first one ever to be opened up to the media — was not a forum for budget advice in the sense of analysts or lobbyists calling for this policy tweak or that tax change. Rather it was a wideranging discussion of issues, more akin to a university economics seminar than a roll- upyoursleeves budget workshop.
What’s left is for de Jong and his staff to pick a way through the maze of possibilities, planning for the most likely scenarios while leaving room to roll with the punches if — or more likely, when — some of those variables don’t work out as expected.
The economists were even more out of step with each other on some specific components they include in their forecast calculations — for example, next year’s net migration ( anywhere from 28,000 more people to 50,000) or the growth in retail sales ( from 1.9 per cent to 5.8 per cent.)
But they were nearer unanimity in some of their big and broad recommendations.
For one thing, they advised de Jong not to plan for a deficit, but not to be too scared of one if revenues fall unexpectedly short of needs. It’s important to watch B. C.’ s creeping debt level, several noted, but it’s lower than most provinces’ and not worrisomely high yet.
And, in what sounded like an oblique blessing of federal Finance Minister Jim Flaherty’s decision to put off balancing Ottawa’s books for an additional year, several said it was better to spill a bit more red ink than to damage economic growth with tough austerity before it’s absolutely necessary.
And most singled out health care and productivity enhancements — especially skills training, but also policies to foster capital investment — as areas where funding must be protected.
Late last summer de Jong announced measures that, he said, would ensure his 2013- 14 budget will be balanced. But, personally, I’d no more bet the farm on this than on any given one of those conflicting predictions of what growth, challenges and opportunities will come to pass.
The message I took from this session is, “We’ll see.”