The B.C. economy will slowly gain momentum in 2014 and then shift into a period of more robust expansion over the next four years and beyond, while the construction engineering sector follows a similar pattern of growth.
“In a nutshell, I see the outlook for this year as being somewhat like what we have been through last year,” said Central 1 Credit Union chief economist Helmut Pastrick.
“I see some pick up, but not a major pick up in overall economic activity. My view is that with the improvement that is expected from the U.S. economy, we will see better growth prospects in B.C. The global economy as well will also begin to grow at a faster pace and we will see some of that in 2014.”
Pastrick recently outlined his preliminary B.C. economic forecast (2014-2018) to a group of about 60 members of the Association of Consulting Engineering Companies-B.C. at the Terminal City Club in Vancouver.
According to Pastrick, the global economy has been going through a long, slow and underperforming recovery phase, since the financial collapse of 2008 and the subsequent recession.
He said this period of stagnation sets the stage for above-average growth over the next five years.
As a result, he predicts that the U.S. economy will experience moderate growth in real Gross Domestic Product (GDP) of about 2.0 per cent to 2.5 per cent in 2014, which is a slight improvement over 2013.
“In the near-term for the first half of 2014, it will look and feel a lot like 2013 ended up,” said Pastrick.
“But, there will be signs of pick-up, and I expect in the second half of the year, we will see increasingly positive signs that growth is picking up.”
For this reason, Pastrick predicts the B.C. economy will grow by 2.0 per cent in 2014 and 3.0 per cent in 2015.
The economy will continue to gain momentum between 2016 and 2018 with growth rates around 4.0 per cent.
“Generally, I expect to see investment spending on new mines, new pipelines and non-residential building to eventually pick up as the economy improves,” he said.
“But, it will be a so-so year. I don’t expect any large increases in 2014. But, certainly beyond (2014), we will start to see substantial pick up in engineering, non-residential building and construction.”
Pastrick said real B.C. private sector non-residential engineering investment declined by about 11 per cent in 2013.
However, the construction industry contributed about $4.6 billion to GDP in 2013, which was a substantial increase from about $2.6 billion in 2003.
In contrast, real non-residential building investment increased by almost 30 per cent in 2013.
“A lot of this is based on major large projects. So, depending on the timing of a large project, when it starts and finishes, that can contribute to this annual volatility,” said Patrick.
“But, the trend is we will see substantial pick up in investment spending on engineering projects and construction, as well as non-residential construction, because of the improvement in the economy, commodity prices and the expected uplift in exports.”
The forecast for real non-residential engineering investment is to remain unchanged in 2014, but return to positive growth rates in 2015 (10 per cent), 2016 (18 per cent), 2017 (10 per cent) and 2018 (10 per cent).
Real non-residential building is expected to fall back by about 4.0 per cent in 2014 and then return to growth in 2015 (8 per cent), 2016 (10 per cent), 2017 (16 per cent) and 2018 (11 per cent).
Pastrick expects to see a couple of the proposed Liquefied Natural Gas projects and their associated pipelines to materialize in the forecast period.
“Not all the LNG projects will proceed, so at the moment I have two advancing over the next five years,” he said.
“We will see the market in Asia result in some contracts here and approval will be granted.”
However, Pastrick said there are still some risks, because approvals still have to be granted and there are other hurdles to overcome.
Despite this fact, he said the political environment and market condition are generally positive for the establishment of an LNG industry in the province.