By Peter G Hall, Vice-President and Chief Economist
Plunging commodity prices and a falling Canadian dollar have turned the tables on provincial growth projections. Oil-producing provinces are in turmoil, absorbing the ongoing impact of project deferrals, cancellations, layoffs and revised oil and gas production intentions. But the lower dollar has non-energy manufacturers anticipating a bonanza. Ontario, Quebec, Manitoba and others are foreseeing a long-awaited resurgence of higher-value-added exports, and hoping that investment will respond. Both are quite likely, but one province already seems to be there. What’s British Columbia’s secret?
The sea change in the growth landscape is well-illustrated by the shift in fiscal fortunes. Oil-producing provinces are already counting the carnage, with Alberta clearly suffering the worst reversal of the bunch. Its projected surplus has turned into a deep deficit, barring counter-balancing measures that in the short-run would magnify the economic misery. The story is similar for the other significant oil-and-gas-producing regions. Among the remaining provinces, those expecting a rapid reversal into the black will have to wait for the expected upsurge in exports. Currently, it is British Columbia that stands almost entirely alone with a projected surplus in the current fiscal year.
Obviously, fiscal outcomes are not normally a cause but a consequence of a number of factors. Solid fiscal management is critical, but not sufficient to guarantee a positive bottom line. The economy needs to cooperate, and in BC’s case, it certainly has. From a hot housing market to a consistently strong employment picture to very respectable gains in business investment, BC has posted very impressive numbers in the past few years. There is concern that things may have been too hot, and that the domestic economy is in for harder times. This is true across Canada, as the consumer debt-to-income ratio has continued to grow. Housing construction has continued well in excess of demographic demand for a number of years, especially in the Vancouver market. The prosperous years have clearly been key to British Columbia’s favourable fiscal situation – but will it last?
In tandem with the progress in the province’s domestic sector has been a radical shift in its trade flows. It has always been among the more trade-diversified provinces in the country, both in terms of the goods it ships and the markets it ships to. Even so, this position has increased – dramatically. Between 2000 and 2013, no province increased its trade with emerging markets more than British Columbia. Over that time, emerging market exports grew from 8.2 per cent of total merchandise exports to 30 per cent – vaulting to top spot among the provinces.
BC’s geographic location is clearly an advantage, as trade diversification was underway before the global crisis of 2008-09, but the crisis itself was likely additional motivation. The forestry sector is a key example. Sawmill products, in 2014 the largest single export category, shipped 1.6 per cent of its output to emerging markets in 2000. Now, the share is 28 per cent. Not to be outdone, pulp shipments – already diversified in 2000 with 22 per cent of shipments headed to emerging markets – now ships almost 72 per cent of its product there. Logging has seen a radical increase in its share, from 1 per cent to 53 per cent. Paper has increased more marginally, from a share of 18 per cent in 2000 to 27 per cent now.
But it’s more than just the forestry sector. Thirteen per cent of coal shipments used to go to emerging markets. Now, the number is 43 per cent. Base metals are volatile, riding the ups and downs of pricing, but the share has risen over the same timeframe by 8 percentage points. The list goes on, but as stated, these products form the bulk of the top ten shipments by industry to the world as a whole. Clearly, BC is set to benefit from the resurgence of the U.S. economy, but for the future, as Canada’s growth rotates to the export side of the national accounts, BC is well-placed, thanks to increasing diversification, to capitalize as global growth becomes more widespread.
The bottom line? British Columbia’s current record stands apart from the rest of the provinces, and among other things, the attention it has paid to trade diversification seems set to continue paying dividends for years to come.
This commentary is reprinted courtesy of EDC. It is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.