Consumer confidence at lowest level since 2000, report says

David Akin, with file from Derrick Penner
Sun

British Columbia consumers, who have fuelled the province’s robust domestic economy over the past couple of years, are becoming reluctant, which will restrain provincial economic growth, according to the Conference Board of Canada’s latest report.

The conference board, in the latest edition of its semi-annual Provincial Outlook report released Wednesday, forecast that growth in B.C.’s overall economic output is slowing largely because the difficulties that have plagued its export sectors are crimping consumer optimism.

Growth in the output of B.C.’s total economy will have slowed to 2.2 per cent by the end of 2008, according to the conference board forecast, but will recover modestly to 2.9 per cent in 2009.

“The domestic economy [in B.C.] is facing contracting housing starts, softening wholesale and retail trade and a construction industry that has hit the wall,” the report said.

Forestry is forecast to contract by just over 13 per cent this year and manufacturing output will drop by 51/2 per cent, by the conference board’s estimate, with 20,000 jobs lost in the manufacturing sector alone.

“The export sector downturn has already pummelled consumer confidence,” the report said, with consumer confidence at its lowest level since 2000.

“Soaring construction costs, labour shortages in the construction industry, pessimistic consumer confidence and alarming contractions in employment in key provincial industries will plague the domestic housing sector over the medium turn,” it added.

Booming Saskatchewan will lead all provinces in economic growth this year, while Ontario and Quebec will suffer through a difficult year, said board forecasters.

The widening prosperity gap between the West and those in central and eastern Canada presents federal policy-makers with some unique challenges. The West may need policies that slow growth and curb inflation while central Canada has few inflationary worries but needs some economic stimulus to encourage growth.

“It’s very difficult to set a course for the Canadian dollar and interest rates when you have such huge differences,” said Glen Hodgson, a vice-president at the board and an author of the report. “I mean, Alberta‘s arguably had an inflation problem now for three or four years. It’s probably going to be imported now by Saskatchewan and Manitoba where there will be very strong pressure on labour markets.

“Meanwhile Canada would benefit from lower interest rates, but the Bank of Canada can’t cut rates because they’re worried about inflation nationally.”

Hodgson said just as the Bank of Canada struggles with the right balance for its monetary policy, the federal government has some tough choices when it comes to fiscal policy. While Prime Minister Stephen Harper often touts the benefits of his GST cut to keep the economy afloat, Hodgson said a GST cut was probably the last thing a province like Alberta needed because it can fuel inflation.

In the last decade or so, federal bureaucrats in the department of finance and at the Bank of Canada have come to view inflation as the greatest danger to the national economy and have often counselled their political masters to take steps to counter inflation. Sometimes, as was the case with the Conservatives’ GST cut, that advice is ignored.

“You have to think about the regional implications of all your policies, both spending and tax,” said Hodgson. “Alberta probably didn’t need a cut in the GST, for example. But if Ontario avoids recession, it’s in part because of tax cuts, both federally and provincially, that provide a little bit of stimulus.”

In its semi-annual provincial outlook, the conference board says Saskatchewan‘s economy is booming thanks to surging commodity prices, particularly oil and potash, and as a result the economy will grow by 4.2 per cent this year.

In fact, the conference board said workers are now leaving Alberta and heading east to Saskatchewan to make their fortune. The report says that as a result, retailers in Canada‘s flattest province may be in for a particularly good year. “The positive labour outlook, combined with lofty wage gains, is spurring a spending spree. Retail sales are expected to soar by 12.2 per cent in 2008.”

Meanwhile in Ontario, where manufacturers have had particular trouble coping with the one-two punch of a fast-rising Canadian dollar and skyrocketing energy prices, economic growth will be just 0.8 per cent, the conference board said.

Next door in Quebec, it will only be a little bit better this year, where growth of 1.4 per cent is expected.

“Since the middle of 2007, the Quebec economy has been at a near standstill. The weakness in the manufacturing sector has eroded economic gains made in other industries,” the report said.

Only the province of Newfoundland and Labrador will see slower economic growth than Ontario this year. After a stellar year in 2007 with double-digit economic growth, the conference board said the pace in Canada‘s most eastern province is stalled. The board predicts growth of just 0.2 per cent there this year.

Overall, the board believes Canada‘s economy will grow by just 1.7 per cent this year.

The forecasters at the conference board, an independent think-tank, are much more optimistic than the Bank of Canada, which said last month that it believes Canada‘s economy will grow by just one per cent.

© The Vancouver Sun 2008

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