Optimism reigns for new year
B.C.’s diversified economy should drive economic growth for the province in 2015.
Even though Canada’s economy is being buffeted by plummeting global oil prices, the outlook for B.C. in 2015 remains stable. The province’s economy is expected to grow by 2.7 per cent this year, an increase over estimated growth of 2.3 per cent in 2014, according to the Economic Forecast Council, a private-sector group comprised of 14 economists who provide a benchmark forecast to the B.C. government.
Unlike Alberta, Saskatchewan and Newfoundland, B.C. does not rely on oil production to drive its economy.
The province has a more diverse business base, including tourism, forestry, mining and natural gas production.
And although economic growth is slowing in Asia, the province is expected to get a boost from the continuing recovery in the U.S.
That will lead to gains in the forestry and tourism sectors, say economists on the council.
“I think, in general, we are looking for a somewhat better state of economic conditions in 2015 compared to 2014,” said Helmut Pastrick, chief economist at Central 1 Credit Union. “And it is largely dependant on external factors: The U.S. economy, the Canadian dollar remaining low, which we think it will. And these lower oil prices help B.C. in general.”
Ken Peacock, chief economist at the Business Council of B.C., also said the recovering economy in the U.S. is a major factor in the province’s stable outlook. He noted the U.S. economy is growing at a “much more meaningful rate,” topping three per cent.
Despite the increasing importance of exports to Asia, led by China, the United States accounted for nearly half of B.C.’s $33 billion in exports in 2013.
And Peacock noted that even though the forest sector is not as large as it once was, it is still the largest source of export revenue for the province.
In 2013, wood products and pulp and paper accounted for one-third of B.C.’s export revenue.
The Canadian dollar is expected to remain low compared with the U.S. currency (it was down about 10 per cent in 2014), but that will also help exports and tourism, say the economists.
Consumer spending is also expected to increase, in part because British Columbians will have more money in their pockets from lower gasoline prices. Crossborder shopping could also be dampened by the slumping Canadian dollar, noted the economists.
There is expected to be a small uptick in employment in B.C., as well as a small increase in population.
OIL AND GAS
Oil prices fell below $60 US a barrel in North America, a 40 per cent drop since last summer.
Natural gas prices are stagnant and low, around the $4 per BTU mark, a result of a glut of gas being produced in the U.S., which has used hydraulic fracturing and horizontal drilling to access new sources of gas trapped in rock formations. B. C.’ s oil production is only a small fraction of its resource sector, which means that the recent drop in oil prices will not have a huge effect on the province’s economy.
But lower oil prices are forcing some global energy producers to hit the pause button on new projects. For instance, Petronas said it will cut capital expenditures in the next year by up to 20 per cent, and has delayed a decision on its $11-billion Pacific Northwest Gas export LNG plant in northwest B.C. until later this year. The Malaysian state-controlled company had said it would make a final investment decision on the project (which also includes a pipeline and upstream development totalling $36 billion) by December.
Services companies in northeast B.C. were counting on an announcement from one of the LNG players to sustain growth in their sector. The LNG developments — Shell and Chevron also have credible projects in the works — are needed to tap into international markets as the United States becomes more energy self-sufficient, noted Al Jarvis, executive director of Energy Services B.C.
The association represents services in three dozen areas, including drilling, camps, construction and pipelines.
Jarvis said the general sentiment in the sector in B.C. remains optimistic, but it is imperative that LNG projects are announced within the next 12 months. “If there was a dip now, there are so many new companies with big bank loans to fund them, that it would be a real negative impact to the whole community,” said Jarvis.
B.C.’s tourism sector continues to experience strong growth despite falling far short of a 2003 challenge by then-premier Gordon Campbell to double provincial tourism revenues to $18 billion by 2015.
Consumer spending is also expected to increase, in part because British Columbians will have more money in their pockets from lower gasoline prices.
In 2013, the tourism industry generated $13.9 billion in revenue, and is expected to increase by about five per cent in 2014 and the same in 2015, said Marsha Walden, who was appointed chief executive of Destination British Columbia, a provincial Crown corporation, in November 2013.
Chinese overnight visitors are a major growth market, up almost 27 per cent in 2013, most of them arriving with group tours, which compares with a 2.4 per cent increase in American visitors and 2.7 per cent increase in Europeans. Chinese visitors should increase again by at least 15 per cent in 2015.
“Many destinations in the world are competing for the time and attention of the Chinese traveller,” Walden said. “It’s about having a strong economy there and a growing middle class that suddenly has the interest and freedom to travel abroad.”
More Americans are expected to visit B.C. in 2015 given the declining value of the Canadian dollar, a trend that should encourage more British Columbians to holiday at home. Tourism should also benefit from lower gas prices.
Future marketing strategies will focus on B.C.’s natural “wow factor” — its rugged coastlines, lush rainforests, and towering mountains. “This notion of the supreme nature that we offer, the raw wilderness,” Walden said. “We try to make the most of that.”
Destination BC, which has an annual budget of almost $55 million, will increasingly maximize its marketing potential by teaming up with partners, be it a major tourist destination such as Vancouver, or working with regions, other provinces and the Canadian Tourism Commission to put Canada on visitors’ radars.
The province recently sold British Columbia Magazine (formerly, Beautiful BC Magazine) to My Passion Media. Walden said the magazine had been losing circulation over the years and would benefit from a company with several complementary publications, including Explore and Canadian Traveller, and a greater online presence. “No corporation can do everything,” she said. “We’re trying to focus more on pure marketing.”
Continuing recovery in the U.S. housing market is the brightest spot that B.C.’s forest industry is looking forward to in 2015, despite having spent the last decade and millions of dollars working toward a breakthrough in exports to Asia.
“It’s hard to crystal-ball it, but certainly we see some reasons for optimism with respect to what we’re seeing in the U.S.,” said James Gorman, president of the industry group Council of Forest Industries.
Forecasts are for U.S. housing starts, a bellwether measure for lumber demand, to top one million in 2014 and continue to rise in 2015 toward what is considered a more normal level to accommodate American population growth by the end of the decade. In 2009, starts hit a low of 544,000 new units.
That should result in a subtle increase in lumber production at B.C. mills, though companies will also have to cope with increasing uncertainties about timber supplies, which are expected to be sharply reduced in future years as salvage efforts to recover mountain pine beetle- damaged trees come to an end. The U.S., however, is a contrast to the weakening of exports to Asia — including China, which had grown to become a saving grace for B.C.’s lumber producers during the U.S. housing downturn.
China has emerged as Canada’s second-biggest offshore market for lumber, surpassing Japan in 2011, but exports to both countries are forecast to ease in 2015, according to industry consultants International Wood Markets Group.
Gorman noted that a two percentage-point increase in Japan’s value-added tax has contributed to a muting of interest in housing construction and in China, a slowing economy has become a concern.
“We’ll continue to do more work there to expand our footprint (in Asia),” Gorman said.
B. C.’ s mining sector faces challenging prospects in 2015, particularly in the key commodity of coal for steelmaking, which is its biggest mineral export and remains in an outright downturn with a market that is oversupplied as growth in Chinese steel production, its biggest consumer, slows.
The year just ending saw Walter Energy Inc. suspend operations at its three mines in northeastern B.C., putting more than 700 miners out of work.
And Scotiabank commodities economist Patricia Mohr is forecasting that the price for B.C.’s steelmaking coal will sink further in early 2015 to $117 US per tonne in the first quarter, compared with $152 US per tonne in the last quarter of 2014.
“That’s definitely had a very significant impact on us,” said Karina Brino, CEO of the Mining Association of B.C.
Brino added that outside of market concerns, miners will be “anxiously anticipating” developments in provincial policy around implementation of stricter requirements for consultation and accommodation of First Nation interests set out by the Supreme Court of Canada’s William decision.
And the industry is still awaiting the findings of the provincially appointed expert panel that is investigating the tailings dam failure at Imperial Metals’ Mount Polley mine near Williams Lake, and whether that will bring new environmental requirements.
Brino noted that two B.C. projects, Alloycorp Mining Inc.’s ( formerly known as Avanti Mining) proposal to reopen the Kitsault molybdenum mine north of Prince Rupert and Seabridge Gold Inc.’s $5.4-billion KSM project in the far northwest, received environmental approval in 2014, and she is hopeful they’ll continue to work toward permitting.
“We are the eternal optimists,” Brino said.
For B.C. small businesses, “confidence is good, but a little fragile,” according to Richard Truscott, regional director for the Canadian Federation of Independent Business.
The confidence level among B.C. small businesses has been among the highest in the country this winter, but “when you dig below the surface, there are definitely some serious challenges in the year ahead,” Truscott said.
The biggest warning flag for 2015 continues to be the shortage of qualified people to work in smaller firms, Truscott said, and he foresees even more intense competition as thousands more temporary foreign worker visas will come due in the early part of 2015. Hospitality, transportation, construction and retail businesses in more remote and smaller communities will be most affected, Truscott said.
Agriculture is poised for more growth in 2015 as commodity prices are “not too bad,” and agricultural markets are expanding with the CanadaEuropean Trade Agreement coming into effect, he said. Businesses in the Fraser Valley as well as Okanagan wineries are expected to benefit.
The retail sector can expect a good year if the B.C. economy continues to chug along, but competition from American businesses will intensify.
The dip in oil prices will help businesses that use fuel and energy, but hurt resource companies. That will trickle down to the small service and supply companies.
“Small businesses need to think big but act local. Think about how they can extend local markets,” Truscott said. Competing head on with bigger competitors on price is a suicidal strategy, he added.
Longtime Langley fish store owner Heather Jenkins is expecting continued growth in her business in 2015 as Buy Local sentiment continues to grow.
“We see new customers almost daily,” said Jenkins, who has owned 1 Fish 2 Fish Seafood Market for almost 17 years.
Over the last couple of years, Jenkins has seen double-digit growth each year. She has eight employees and 1,500 square feet.
“I feel very, very blessed,” Jenkins said.
Customers “are looking to connect with their local merchants” and they want local and sustainably harvested seafood. Because the growth is in younger families looking to support small businesses, she believes she will keep those customers for years to come.
While she doesn’t have any specific plans to invest in the business in 2015, she isn’t affected by any labour shortage. She hires high school students who usually stay with her through their university years. “Staff usually stay two to seven years,” she said. “I’ve been strategic in figuring that out.”
Real estate activity throughout B.C. should “plateau” during 2015, with minor sales and price increases in most residential categories, following a very active market in 2014 that experienced a 15 per cent increase in home sales.
“The overall housing story in 2015 will be slightly higher sales, but prices will only grow around the rate of inflation,” B.C. Real Estate Association chief economist Cameron Muir predicted. “A lot of people say we’re due for a soft landing in the housing market, but the reality is that the soft landing has occurred over the last four years.”
He expects the total number of Multiple Listing Service home sales throughout B.C. to increase by 1.2 per cent in 2015 to 84,900 units. The average residential house price in the province is forecast to grow by 1.2 per cent to $574,300, after a six per cent increase last year.
Muir said single-detached home prices should increase by more than the average because that housing type continues to represent a smaller portion of the total housing stock.
He said economic growth will support the housing market this year, but that will be offset by mortgage-rate increases in the second half of 2015 — with five-year rates expected to climb 66 basis points to an average of 5.65 per cent.
Premise Properties president Avtar Bains feels “megadevelopment deals” will be the commercial real estate story of 2015, with Metro Vancouver projects such as Oakridge, Brentwood and East Fraser Lands forging ahead.
He said construction of new downtown Vancouver office buildings such as Telus Garden should free up a lot of new space in older buildings and possibly put some downward pressure on leasing rates in those structures.
But Bains said downtown Vancouver properties will remain popular among private, institutional and offshore buyers as asset values remain at record highs.