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March 12, 2009

Economic Snapshot — March 13, 2009

Don’t expect the Olympic torch to provide B.C. with much heat in 2009

By John Clinkard, Consulting Economist, CanaData

According to British Columbia’s Central 1 Credit Union, the province entered into recession slightly ahead of the rest of the country. This observation is based on Credit Union 1’s recently introduced Coincident Economic Index (CEI), which declined by 0.45% quarter over quarter in fourth-quarter 2008. This decline followed an earlier drop of 1.14% in third-quarter 2008.

According to Statistics Canada, the national economy increased by 0.9% in the third quarter, followed by a 3.4% decline in the fourth.

In the fourth quarter, there were four major sources of weakness in B.C. Among them was housing demand, which virtually evaporated after a 54% year-over-year drop in existing home sales.

Based on a 20% quarter-over-quarter (at annual rates) drop in fourth-quarter retail sales, consumer spending was just as depressed as home sales.

Business investment, in real terms, also shrank in the fourth quarter. This drop continues a steady downtrend that started in third-quarter 2007. Indeed, over the past year, the total volume of business non-residential construction in British Columbia has fallen by 11.9%. This figure is especially weak when compared to the 0.2% increase for the country as a whole.

Finally, reflecting the impact of rising unemployment and weakening business revenues, personal bankruptcies were up 42% year over year in December 2008, while business bankruptcies rose by 9%.

Looking forward, given three factors — the very sharp drop in total employment in January 2009, the 80% year-over-year drop in residential building permits and a further drop in export volumes due to flagging global demand for commodities — the B.C. economy is likely to contract at a faster rate in first-quarter 2009 than it did in fourth-quarter 2008.

Moreover, it is highly likely that this pattern of contracting growth will persist into the third quarter since, based on the latest survey, capital spending intentions in British Columbia are down close to 10% compared to 2008.

However, the combined impact of three factors should mean that growth in the province will gain momentum mid-way through the second half of 2009: (1) increased federal and provincial infrastucture spending; (2) a surge in Olympic Games related spending; and (3) strengthening global demand for raw materials.

John Clinkard has over 30 years experience as an Economist in international, national and regional research and analysis with leading financial institutions and media outlets in Canada.

Source of actuals: Statistics Canada.
Forecasts and chart: Reed Construction Data – CanaData.

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