Economic forecasts are not pretty for 2023 and 2024. One must keep in mind that the Bank of Canada, along with the Fed in the U.S. and other central banks, engineered the current economic slowdown to tamp down inflation. But there are statistics forecast to decline in Canada and in B.C. that the no one, including the Bank of Canada, wants to decline. Foremost among them is real income per person.
The Business Council of BC (BCBC) issued a report in February, “Real Incomes Continue to Fall in Canada and B.C.” It projects real GDP per capita could fall 1-3% in 2023 and by a similar number in 2024. The real GDP per capita growth is forecast to be -0.8% in 2023. Canada’s economy is one of the few advanced economies to not have recovered its pre-pandemic GDP per capita says BCBC.
Growth of the Canadian economy (real GDP) will continue to be positive, but will be lower than the last two years. GDP growth is forecast to drop from 3.6% in 2022 to 1% in 2023 and 1.8% in 2024. As BCBC points out, GDP growth is supported by population growth, not productivity growth. “Whereas growth in labour productivity translates to higher GDP per capita and real incomes, growth in total hours worked only raises topline or GDP.”
In BC, similarly, real GDP growth of 2.9% in 2022 is forecast to slow to .9% this year, and will recover somewhat to 1.5% in 2024. Higher commodity prices boosted exports in the first half of 2022, but commodity prices softened and exports declined in the second half of the year, says BCBC, and will continue to decline in 2023. They project home construction will slow from about 43,000 units in 2022 to 40,500 in 2023 and 39,000 in 2024. Demand for labour will ease with the slowing economy, and unemployment will increase to 5.7% in 2023 and to 6% in 2024.
GDP per capita, in the province, will track the national pattern. Anemic growth of 0.7% in 2022 will sag to -1.1% in 2023 and -0.4% in 2024. In other words, real income per person will decline.
Governments have created an unfriendly investment climate. The federal and provincial tax systems are increasingly complex and uncompetitive. Regulation places costly administrative burdens on businesses. Resource project approvals are inordinately lengthy and unpredictable. The federal government actively discourages investment in resource industries, even those with much lower carbon emissions than alternatives. Worse, current governments are unwilling to address any of these issues.
The C. D. Howe Institute has researched Canada’s poor record of growing SMEs (small and medium size enterprises). Investment capital is essential for growth, but the domestic venture capital industry only provides about 30% of capital accessed. C.D. Howe says, “There are almost no retail venture investors in three of the four biggest markets in Canada: Ontario, B.C. and Quebec.” They also found Canada has a larger interest rate gap on loans charged to SMEs relative to large enterprises than do other countries. And the percentage of SME loans to total loans is very low in Canada, and fell further from 2007-2019.
Business investment increased under the Harper Government, but has been feeble under the Trudeau Liberals. In 2017, Canada lost its advantage over the U.S. in corporate income tax rates. Now, business investment barely keeps up with depreciation, says BCBC, resulting in a flat or declining capital stock. William Robson of C.D. Howe demonstrated that, “countries with high productive capital stocks also have high levels of output.” The study of OECD nations showed Canada, in 2022, ranked 16th of 17 in its productive capital stock, and 15th of 17 in labour productivity. (Labour productivity is closely related to real income.) So, near absent business investment in recent years has eliminated real income growth.
BCBC (and other think tanks) see their extensive research and practical policy guidance being ignored consistently in Ottawa. Yet, BCBC tends to remain respectful. However, Jock Finlayson, senior policy advisor, and Ken Peacock, Senior Vice President, wrote more bluntly recently, “Unfortunately, as described in former federal Finance Minister Bill Morneau’s new book, the Trudeau government seems to have given up on trying to bolster the country’s ‘economic fundamentals’, preferring to focus on expanding the population and spending vast sums of money in a scattershot fashion.”
Finlayson and Peacock add that, on the present path, Canada’s prospects of “raising real GDP per person and building a more innovative and productive economy” are not good. They conclude, “B.C. can’t look to Ottawa for smart economic leadership or sound ideas to build productivity.” Before the province tabled its budget, they called upon it, “to craft and implement an agenda to advance prosperity.” The authors, and many British Columbians, were soon to be disappointed. More on that in a later column.
Bruce W Uzelman
I grew up in Paradise Hill, a village in Northwestern Saskatchewan. I come from a large family. My parents instilled good values, but yet afforded us, my seven siblings and I, much freedom to do the things we wished to do. I spent my early years exploring the hills and forests and fields surrounding the village, a great way to come of age.
I attended the University of Saskatchewan in Saskatoon. I considered studying journalism at one point, but did not ultimately pursue that. However, I obtained a Bachelor of Arts, Advanced with majors in Economics and Political Science in 1982.