Sharply shrinking economy will knock wind out of B.C. businesses’ sails
Paul Luke
Province
B.C.’s lumber-reliant forest industry will be stuck in survival mode because recovery in U.S home building remains elusive. Photograph by: Sam Leung, The Province
Business activity in B.C. will take a sharper-than-expected hit this year as the recession blows the economy off its feet, Royal Bank of Canada says.
The bank said yesterday it now expects B.C.’s economy to shrink by 1.9 per cent in 2009, worse than the 1.5-per-cent contraction it earlier expected.
Recession has knocked the wind out of most of B.C.’s industrial sectors, the bank said yesterday in an updated outlook.
“Since mid-year last year, the weakness has spread well beyond the forest products sector — an early victim and now in full-blown crisis — and into manufacturing, construction, mining and even service industries such as transportation and retail trade.” the bank said.
Meaningful recovery in U.S. home building remains elusive. This will keep B.C.’s lumber-reliant forest industry stuck in survival mode, the bank said.
Forestry’s weakness, in turn, will be a drag on overall exports, employment and private capital spending, the bank said.
“Mining activity will be restrained by coal producers reducing output in the face of lower prices after enjoying a stellar year in 2008,” it added.
Despite a rise in existing-home sales this spring, B.C.’s housing industry is fragile, the bank said.
Home building plunged to a nine-year low between March and May and will show only a modest pick-up during the rest of the year.
Housing starts will fall 57 per cent this year to 14,700 units, the lowest level since 2000, the bank said.
Retail sales this year are expected to fall by 6.5 per cent, the country’s second-largest decline after Alberta‘s 7.8-per-cent drop.
“B.C. consumers . . . have gone into hiding during the past several months, shunning major expenditures such as automobiles, furniture and other home furnishings, as well as those related to home renovation,”the bank said.
B.C.’s jobless rate will soar to 7.8 per cent this year and next from 4.2 per cent in 2007, the bank said.
On the plus side, a 15-per-cent jump in government spending on public infrastructure this fiscal year is expected to partly offset weakness in the rest of the economy.
An injection of tourist dollars during the 2010 winter Olympics is also expected to provide a bigger boost.
Real GDP in the province should increase for 2.9-per-cent growth next year as B.C. and Alberta tie for second-fastest growth behind Newfoundland‘s three per cent.
The B.C. economy declined by 0.3 per cent last year.
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