Can B.C. Dodge a Downturn this Time Around?
"Own a piece of VANCOUVER history," beckons a towering lime-green sign advertising a condominium project in the city's downtown core. But for those who heeded the call, the only thing to lay claim to now is a gaping hole in the ground. Last week one of the banks financing the proposed 37-storey project backed out and work at the site was halted. A similar scenario has played out at condo craters across the Lower Mainland. Meanwhile, bad news continues to roll in from British Columbia's forestry towns, with mill closings an almost weekly event. Last month B.C. lost 8,200 jobs, the biggest drop of any province. Such is the lot of a "have" province these days.
When B.C.'s Finance Minister Colin Hansen presented his economic update this week, he confirmed what many here already suspected. B.C. is not immune to the financial crisis. The slowdown has chopped $804 million from the province's revenues this year, while B.C.'s budget surplus has shrunk to $450 million, down from the $1 billion that was projected just two months ago.
But compared to the malaise in the rest of the country, that hardly counts as hard times. Which is exactly the message of relativity the governing LIBERALS, with just six months before the next provincial election, are so desperate to get across to B.C.'s mercurial voters. "I think British Columbia is better positioned than probably any other province in Canada," Hansen, who is also the minister responsible for the Vancouver 2010 Olympics, told Maclean's last week. So could the province, known infuriatingly in colder climes for its mild winters, also dodge the worst of the economic blizzard sweeping the rest of the country? Some economists say yes, in the short term at least.
The possibility that B.C. could outperform other provinces says a great deal about how grim the situation is expected to get elsewhere in Canada. In B.C.'s forestry sector, dozens of mills have been closed as a result of slumping demand from the U.S., throwing thousands out of work. Vancouver's once red-hot housing market, meanwhile, is expected to be particularly hard hit as prices tumble. But the fact is, B.C. heads into the downturn with far more wiggle room than almost any province or state in North America. For starters, it enjoys the second lowest debt-per-capita level in Canada, second only to Alberta, which has been debt-free since 2004. Once the latest round of tax cuts takes effect, B.C. will also boast the lowest corporate tax rate of any jurisdiction in the G8 group of countries. And while unemployment in B.C. jumped half a percentage point to 5.1 per cent last month, it is still well below the national average of 6.2 per cent. Even with B.C.'s shrinking surplus, Hansen is one of the few finance ministers anywhere who can say "there will not be deficits" while keeping a straight face.
The B.C. Liberals have certainly tried to present themselves as the steady hand at the till. Last month Premier Gordon CAMPBELL went on TV in a province-wide address to lay out his 10-point economic plan, including retroactive tax cuts, spending freezes, unlimited deposit insurance for credit unions and the acceleration of infrastructure projects. Meanwhile, Hansen has been out speaking with the media at every opportunity to talk up the province's prospects. B.C.'s economy is far more diverse than it once was, he says. While the province generates much of its revenues from natural gas, its technology, mining exploration, tourism and construction sectors have all been strong. Economists give B.C. high marks for diversification, but they also say the province, like all others, will be hammered by falling consumer confidence. "B.C. is not immune to all these bad things, but it doesn't have anything like the auto sector, or oil sands sector that's being squeezed so badly," says Roger Gibbins, CEO of the Canada West Foundation. "The assessment is that B.C. is better off, in relative terms."
A lot depends on what type of recession this ultimately turns out to be. If B.C. evades the worst effects of the slowdown, it won't be the first time. When the Canadian economy ground to a halt in the early 1990s, B.C. emerged relatively unscathed. Even as the country's gross domestic product shrank by 0.5 per cent in 1990, and another 1.7 per cent in 1991, B.C. managed to grow by 2.8 per cent. B.C. also produced more jobs, while many other provinces were awash in pink slips. One of the province's saving graces then was its limited exposure to the crippled U.S. manufacturing sector. That sounds an awful lot like what is happening now. Ontario, which is chained to the U.S. auto industry, will be hardest hit. B.C., on the other hand, has worked to strengthen its ties to countries such as China, India and Japan through its Pacific Gateway initiative.
Not that B.C. should take too much comfort from history books. When the global economy skidded to a halt in the early 1980s, B.C. fared far worse than many other provinces. That downturn touched off a two-decade bear market in commodity prices that walloped western provinces. The fear now is that commodity prices are once again headed south, as demand from Asia lessens. The worst of all possible worlds would see the utter collapse of not just the U.S. economy, but also emerging markets in Asia. If that happens, no province is safe.
It helps that B.C. has several options it can pursue. It will fast-track infrastructure spending, which might help offset some of the slowdown in the construction sector. Hansen points to plans to upgrade the province's huge network of resource roads as one engine of growth. The province will also speed up its 15-year, $1.5-billion program to perform seismic upgrades on public schools, readying them in the event of an earthquake.
And then there are the Games. From the moment the Olympics were first awarded to Vancouver and Whistler in 2003, they have held an almost mythical sway over the province for their purported power to elevate real estate markets. While several studies have debunked that idea, the 2010 Olympics are starting to look like the ace up B.C.'s sleeve. "The timing looks really good," says Gibbins. "Going into next year there's not a lot of good stuff happening out there, so the Olympics could offer some sort of boost."
Whether this will add up to a third Liberal majority is impossible to tell. One Ipsos Reid poll last week gave the Liberals a nine-point lead over the provincial NDP, yet days earlier an Angus Reid poll put the NDP ahead.
There is a sense the Liberals are merely stealing a page from the Stephen HARPER election handbook, specifically the section on maintaining a good poker face right up until securing a victory, at which point you finally admit to how bad things really are. But as British Columbians brace for the slowdown, they might spare a thought for an old saying that's been making the rounds of late: "I used to complain that I had no shoes, until I met a man that had no feet." The economic slowdown may hobble the province, but at least it's likely to remain upright.
Maclean's December 8, 2008