BC and Lower Mainland Economic Outlook and Key Trends presented to: - - PowerPoint PPT Presentation

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BC and Lower Mainland Economic Outlook and Key Trends presented to: - - PowerPoint PPT Presentation

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BC and Lower Mainland Economic Outlook and Key Trends presented to: Vancouver Real Estate Forum April 19, 2006 Vancouver, BC Jock Finlayson Executive Vice-President Business Council of British Columbia jockf@bcbc.com www.bcbc.com BC

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SLIDE 1

BC and Lower Mainland Economic Outlook and Key Trends

presented to:

Vancouver Real Estate Forum

April 19, 2006 Vancouver, BC

Jock Finlayson Executive Vice-President Business Council of British Columbia jockf@bcbc.com www.bcbc.com

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SLIDE 2

BC BC’ ’s Economy is Booming! s Economy is Booming!

  • Economic expansion is broadly-based

» most sectors and all regions participating

  • Domestic economic activity very strong

» housing market & consumer spending » non-residential construction and M+E investment » government fiscal stimulus

  • Export sector more resilient than expected

» energy (gas and coal) driving growth » but some other sectors also healthy – wood products, agriculture, machinery & equipment, technology » But…tourism a soft spot, and pulp/paper in crisis

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SLIDE 3

Jobs Are Plentiful Jobs Are Plentiful

BC Labour Market

Employment Growth

  • 0.5

0.5 1.5 2.5 3.5 4.5 02 03 04 05 06

y/y per cent change

Unemployment Rate

4 5 6 7 8 9 10

02 03 04 05 06

per cent 25 yr avg.

Source: Statistics Canada, quarterly averages. Latest: Q1 2006

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SLIDE 4

Stronger Job Growth Outside of Lower Stronger Job Growth Outside of Lower Mainland Mainland

Employment Growth by Region

1.6 2.5 3.5 0.9 2.6 6.8 4.5

  • 0.9

0.2 1.3

  • 2.6
  • 3
  • 2
  • 1

1 2 3 4 5 6 7 96 97 98 99 00 01 02 03 04 05 Q1 06

Lower Mainland Rest of BC

per cent

Source: BC Stats.

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SLIDE 5

Good Times for Retailers Good Times for Retailers

BC Retail Sales, quarterly

year-over-year per cent change

  • 6
  • 4
  • 2

2 4 6 8 10 12

98 99 00 01 02 03 04 05 Jan. 2006

per cent

Source: Statistics Canada.

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SLIDE 6

New Home Construction Picks up Again New Home Construction Picks up Again

BC Housing Starts

Annual Growth

  • 40
  • 30
  • 20
  • 10

10 20 30 95 97 99 01 03 05

y/y per cent change

Total Starts, monthly

500 1000 1500 2000 2500 3000 3500 4000 00 01 02 03 04 05 06

starts, SA trend units

Latest: March 2006 Source: CMHC.

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SLIDE 7

And Non And Non-

  • residential Construction Surging

residential Construction Surging

Non-residential Building Permits, BC

quarterly S.A. 200 400 600 800 1000 80 82 84 86 88 90 92 94 96 98 00 02 04 06*

Source: Statistics Canada.

millions $

*Q1 2006 estimated based on January and February permits

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SLIDE 8

Non Non-

  • Residential Structures and Other

Residential Structures and Other Capital Projects Fuelling Growth Capital Projects Fuelling Growth

  • Non-residential building permits jumped 55% in

2005, and remain at elevated levels

» led by very strong increases in commercial and institutional/government building » smaller increase in industrial permits

  • Many other large engineering projects underway

around the province

» Canada Line, Golden Ears Bridge, Sea-to-Sky Highway, Pitt River Bridge, border infrastructure program » William R. Bennett Bridge, Kicking Horse Pass, various power generation and transmission upgrades, Cariboo Connector (Highway 97 improvements)

  • Gateway program – projects in consultation phase
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SLIDE 9

Energy Lifts BC Exports in 2005 Energy Lifts BC Exports in 2005

BC Merchandise Exports, annual 10 15 20 25 30 35 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Total

  • Excl. Energy

billions $

Source: BC Stats.

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SLIDE 10

BC Net Migration, quarterly S.A.

  • 5

5 10 15 20

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Total Interprovincial International

Immigration Up, Net Immigration Up, Net Interprovincial Interprovincial Migration Down Migration Down

Source: BC Stats, Business Council for seasonal adjustment.

thousands

Latest Q4 2005

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SLIDE 11

US Tourism Market a Soft Spot US Tourism Market a Soft Spot

Non-resident Tourists to BC, annual

US Tourists to BC

1.5 2.0 2.5 3.0 3.5 4.0 93 95 97 99 01 03 05

millions

Tourists to BC, all

  • ther countries

0.4 0.6 0.8 1.0 1.2 1.4 1.6 93 95 97 99 01 03 05

millions

Source: Statistics Canada.

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SLIDE 12

Operating Budget 2000/01 to 2008/09

billions $

1.450 1.775 2.575

  • 1.275

1.503

  • 1.187
  • 2.737

0.950 0.550

14 18 22 26 30 34 38 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09

  • 4
  • 2

2 4 6 8

BC Fiscal Track BC Fiscal Track

Expenditures Revenues* deficit / surplus & forecast allowance (right scale)

Source: BC Budget and Fiscal Plan 2006/07. * Revenues include net earnings of Crown corporations

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SLIDE 13

Debt Burden Falling Debt Burden Falling

BC Taxpayer Supported Debt Relative to GDP

20.6 17.3 18.0 18.2 18.5 20.5 21.3 20.6 15.4 15.7 18.2 16.4 15.8

12 14 16 18 20 22 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09

per cent

Projection in 2006 Budget

Projection in 2005 Budget

Source: BC Budget and Fiscal Plan 2006/07 – 2008/09.

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SLIDE 14

Solid Economic Growth On Tap for BC Solid Economic Growth On Tap for BC

Real GDP Growth

Average Real GDP Growth

1 2 3 4

  • avg. 80s*
  • avg. 90s
  • avg. 00s**

BC Can

Real GDP Growth

1 2 3 4 5 01 02 03 04 05 06 07

per cent

BC Canada

per cent

forecast Source: Statistics Canada for history; forecasts from BC Economic Forecast Council for BC; BMO, CIBC, RBC, Scotiabank and TD for Canada. * 1982-1989 ** includes 2006 & 07 forecasts

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SLIDE 15

BC Economic Outlook 2006/2007: BC Economic Outlook 2006/2007: Key Risks/Uncertainties Key Risks/Uncertainties

  • Canadian dollar (a stronger currency is negative for

lumber, pulp/paper, agri-food, tourism, film, etc.)

  • US economy – a number of risks including the trade

deficit, a negative savings rate, consumer spending and the housing market

  • Softwood lumber trade dispute – an “upside surprise”

is possible

  • Oil/natural gas prices – higher prices boost provincial

government revenues, but dampen overall growth due to the impact on the global economy and on domestic energy consumers

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SLIDE 16

The Province Faces Some Ongoing The Province Faces Some Ongoing Economic Challenges Economic Challenges

  • Skill shortages aggravated by a buoyant economy

and stiff competition for talent from other jurisdictions

  • A long period of sub-par productivity gains
  • Reconciling environmental protection with resource

development

  • Mountain pine beetle (post-2010)
  • Boosting electricity supply and improving/expanding

transmission infrastructure

  • The “Alberta factor”
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SLIDE 17

Employment Growth by Industy, Vancouver CMA (annual average 2000-2005)

3.8 3.9 4.5 4.8 5.4 5.7 6.4 6.5 7.4 8 8.2 8.9 10.7 11.7 11.8

2 4 6 8 10 12 14

Wholesale Trade Food & Beverage Services Agriculture Utilities Fabricated Metal Mfg. Arts, Entertain., Rec. Business, Building, Support serv. Machinery Manufacturing Food, Beverage Mfg. Furniture Mfg. Educational Serv. excl K-12 Construction Arch., Engineering Services Mining, Oil and Gas Extraction Rental & Leasing Services

Commodities and Construction Helping to Commodities and Construction Helping to Drive Job Growth in Vancouver Drive Job Growth in Vancouver

Source: Statistics Canada.

per cent

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SLIDE 18

Regional Manufacturing Struggling Regional Manufacturing Struggling

Employment Growth by Industy, Vancouver CMA (annual average 2000-2005)

  • 2.2
  • 2.8
  • 3.0
  • 3.9
  • 4.4
  • 5.6
  • 5.8
  • 6.1
  • 6.9
  • 7.0
  • 7.8
  • 8.0
  • 9.9
  • 11.1
  • 16.7
  • 20
  • 15
  • 10
  • 5

Computer System Design Serv. Non-Metallic Mineral Prod. Mfg. Federal Gov't Public Admin. Accommodation services Private household services Textile Mills (Mfg.) Printing and related (Mfg.) Chemical Mfg. Clothing Mfg. Electrical Equip. Mfg. Transportation Equip. Mfg. Primary Metal Mfg. Plastics & Rubber Mfg. Air Transportation Paper Mfg.

Source: Statistics Canada.

per cent

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SLIDE 19

GVRD Housing Starts GVRD Housing Starts

Total Number of Housing Starts 2001-2005

1.2 1.3 2.0 2.5 2.8 3.8 4.2 6.4 6.8 8.5 17.4 24.8 6.8 5 10 15 20 25 30 West Vancouver Port Moody Delta New Westminster North Vancouver (C+DM) Port Coquitlam Maple Ridge / Pitt Meadows Coquitlam Langley (C+DM) Burnaby Richmond Surrey/White Rock Vancouver thousands

Source: BC Stats.

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SLIDE 20

Most Household Formation Will be in Most Household Formation Will be in the GVRD the GVRD

Number of Households Formed Over 5-Year Periods

20 40 60 80 100 1990- 95 1995- 00 2000- 05 2005- 10 2010- 15 2015- 20

Fraser Valley Greater Vancouver Rest of BC

Source: BC Stats.

thousands

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SLIDE 21

Population Growth Projections: Population Growth Projections:

GVRD Municipalities* 2006 GVRD Municipalities* 2006-

  • 2011

2011

7.3 1.7 1.8 2.4 3.9 4.9 6.2 6.7 8.4 11.0 10.0 2 4 6 8 10 12 Total West Vancouver Delta North Vancouver Vancouver Burnaby Richmond New Westminster Coquitlam Maple Ridge-Pitt Meadows Surrey

Source: BC Stats.

per cent change

* School Districts

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SLIDE 22

A Housing Bubble? A Housing Bubble? –

– reasons for concern reasons for concern

  • Prices in Greater Vancouver are above their long run trend (and

historically have eventually returned to trend level)

  • Price gains outpace household income growth
  • Price increases have also outstripped rents (real estate P/E

ratios suggest overvaluation)

  • Current fundamentals don’t fully support recent price gains

» population and income growth stronger in Alberta than BC, yet average home prices in Calgary up 20% (y/y) in Q1 2006 vs almost 22% in Vancouver

  • Affordability - debt load is high and BC savings rate sank to an

all-time low of -7.9% in 2004 (higher interest rates would impact capacity to service debt)

  • Everyone is talking about real estate
  • Downturn in US housing market could influence psychology in

Vancouver/BC

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SLIDE 23

A Housing Bubble? A Housing Bubble? –

– a more sanguine view

a more sanguine view

  • Distinction between “collapsing bubble” & levelling off/small

correction

  • International investment a factor in some segments
  • Interest rates are rising, but at a measured pace
  • Signs of speculative activity are still fairly muted

» number of properties held < 6 months is still relatively low (about 7% compared to a peak of 15% in 1990/91 and more than 25% in 1980/81)

  • A relatively limited supply of product (sales to new listing ratios

are high)

  • Employment growth and in-migration support housing
  • Some pricing premium related to the Olympics
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SLIDE 24

Significant Price Corrections Have Occurred in Significant Price Corrections Have Occurred in the Past the Past

Greater Vancouver Housing Prices

50 100 150 200 250 300 350 400 450 80 82 84 86 88 90 92 94 96 98 00 02 04

thousands $

Source: CREA, average price of homes sold through MLS, real prices deflated by the BC CPI. Latest: December 2005 from mid 1981 to latter 1982 prices fell 36% (in real terms they dropped 44%) early 1990 prices drop 15% within a year (20% real $)

real prices current prices long-term trend

early 1995 to the end of 1996 prices fall 20%

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SLIDE 25

Greater Vancouver Greater Vancouver – – Ten Key Growth Industries Ten Key Growth Industries

  • Transportation/logistics/warehousing (increased trade;

expanding gateway role)

  • Education services (universities/colleges; private training + ESL)
  • Information and communication technologies (incl. software,

telecommunications, new media)

  • Scientific and technical services (engineering, environmental, etc.)
  • A few segments of manufacturing (machinery, food & beverage,

fabricated metal products)

  • Transportation infrastructure (ports, YVR, RAV line, etc.)
  • Film production (except for 2004)
  • Real estate and other financial services
  • Biotech cluster (life sciences; health research)
  • Construction
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SLIDE 26

Some Challenges for the Lower Mainland Some Challenges for the Lower Mainland’ ’s s Business Climate Business Climate

  • Transportation congestion

» commuters (moving in all directions within the region) » goods movement (Gateway role)

  • Poor regional governance structure
  • Land supply for commercial & industrial development
  • Housing costs

» affordability is not just a low income issue

  • Property tax disparities
  • Competitiveness & cost of doing business

» Remote location within North America » Small corporate / head office sector » Cdn$ has eroded most of the US$ cost advantage

  • Labour supply / skill shortages
  • Economic base to support future wage/income growth
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SLIDE 27

An Aging Population An Aging Population

BC's Current and Future Population by Age Cohorts

200 400 600 800 1,000 1,200 15-24 25-34 35-44 45-54 55-64 65+ 2005 2026

Source: BC Stats.

thousands

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SLIDE 28

Profile of Participation Rates & Aging Population Profile of Participation Rates & Aging Population Set to Dampen Set to Dampen Labour Labour Force Growth Force Growth

BC Participation Rates, 2005

10 20 30 40 50 60 70 80 90 100 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+ Males Females

Source: BC Stats.

per cent

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SLIDE 29

Much Slower Growth in Much Slower Growth in Labour Labour Force Force

BC Labour Force Growth

history and projections

1 2 3 4 5 6 76 81 86 91 96 01 06 11 16 21 26

Baseline Low High projections

per cent

Source: Statistics Canada, BCBC.

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SLIDE 30

Implications of Dwindling Labour Force Implications of Dwindling Labour Force Growth Growth

  • May not bring across-the-board labour shortages, but

employers will have to adjust to a world of “relative labour scarcity”

  • Potential economic growth will decline

» GDP growth = productivity + employment growth (hours worked) » over the past decade output per worker has increased 1% per year (and output per hour by 1.2% - 1.3%) » potential GDP growth per year could slow from approx. 3% to 1.2%-1.6%

  • Productivity gains critical to address the challenge of

slower labour force growth

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SLIDE 31

Summary Summary

  • BC’s economy has turned around and is
  • utperforming Canada on most key metrics
  • Real GDP growth of 3.5-4.0% likely in 2006-07
  • Lower mainland growth should roughly equal

province-wide performance, partly due to expanding population and acceleration of infrastructure projects

  • Some short-term risks to be aware of, as well as

medium-term challenges to continued growth

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SLIDE 32

For a copy of this presentation, For a copy of this presentation, please contact please contact Vicki Champ Vicki Champ at at

vchamp@bcbc.com vchamp@bcbc.com

  • r visit our website at:
  • r visit our website at:

www.bcbc.com www.bcbc.com