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October 2, 2013
Slow growth for BC economy expected in 2013
The BC construction industry will expand slowly and then shift to much faster growth over the next five years, while the overall economy will be sluggish in 2013 and gain strength in 2014 and beyond.
“With non-residential construction, the projects are so large when one starts up there can be a big boost in a year,” said Central 1 economist Bryan Yu. “In terms of large scale construction projects, we haven’t seen as many this year as last year. But, there are a number of major projects ready to go in the next year, which is driving a component of our forecast.”
Yu recently updated the B.C. Economic Forecast 2013-2017, which predicts real provincial Gross Domestic Product (GDP) will increase by 1.4 per cent in 2013. This represents a downward revision from the previous forecast in February of 2.2 per cent.
One of the main reasons for the sluggish provincial economy is a pull-back in the amount of capital spending by the resource sector.
“Lower mineral and metal prices will hamper growth in resource extraction and support activity through 2014 putting a temporary pause to B.C.’s commodity-led growth story,” said Yu. “Excess supply and dampening of global industrial demand have lowered commodity prices and pressured corporate margins.”
This economic environment has made financing difficult and costly for junior miners, which is a constraint on exploration and investment. As a result, the construction industry is expected to grow at a rate of 0.7 per cent in 2013.
Last year, the construction industry grew by 4.5 per cent driven by projects like the $3.3 billion modernization and expansion of the Rio Tinto Alcan aluminum smelter in Kitimat.
One of the few bright spots in the economy this year is forestry and wood products, which are experiencing higher demand and prices due to rising new home demand in the U.S. and Japanese reconstruction efforts.
Dollar-volume exports and wood product production are up sharply from 2012 by about 30 per cent this year, which largely reflects higher prices.
As U.S housing starts increase to more than one million units a year, upside pressure will build for imported wood products.
Real GDP is expected to shift to above moderate growth in 2014 (2.4 per cent), 2015 (2.9 per cent), 2016 (3.4 per cent) and 2017 (3.8 per cent).
According to Yu, growth in this period will depend on improvements in the global economy and the start of major projects, which will drive exports, construction and business investment.
For example, several proposed liquefied natural gas (LNG) projects in the northwest that are worth billions of dollars are set for construction. These projects, which are led by consortiums such as Kitimat LNG Terminal ($4.7 billion), LNG Canada ($12 billion) and the Pacific Northwest LNG ($16 billion), include the construction of plants, terminals and pipelines.
Mining projects are also scheduled for construction during the period, including Taseko’s controversial Prosperity mine near Williams Lake, KSM gold/copper near Stewart, and Copper Fox in Iskut.
Low sales volume and buyers’ market conditions through 2012 will generate lower new home construction this year.
Provincial housing starts are expected to fall 6 per cent to 25,800 units, before gradually moving to about 30,000 units by 2016 driven by household formation.
Renovation spending will provide some uplift in 2013 before flattening in 2014. Residential investment growth is forecast to pick up in 2015-2017 on a cyclical uptrend in housing starts.
Construction GDP is expected to expand faster than the economy in 2014 (3.2 per cent), 2015 (5.4 per cent), 2016 (7.6 per cent) and 2017 (4.8 per cent).
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