BC Business Matters:
In the News This Week: Five Business and Economic Stories Affecting BC
Each week we recap five economic and business news stories impacting British Columbia's economy. This week we look at:
- Bank of Canada's interest rate change,
- The new Canada Energy Strategy,
- BC confirms a surplus for 2014-2015,
- The Iran Nuclear Agreement,
- Canada's inflation numbers,
Some Musings on the Bank of Canada’s Latest Rate Cut
What are we to make of the Bank of Canada’s decision this week to trim its benchmark policy interest rate by another 25 basis points, taking it to a near record low of 0.5%?
For one thing, the Bank is acknowledging that the energy-related downturn in capital spending and exports in Canada has been more pronounced than it was expecting earlier in the year – and the pain is likely to persist for a while yet. Canada’s economy, we are told, is facing “complex adjustments” that will unfold over the “next few years.” At the heart of these “adjustments” is a less rosy future for both crude oil and many other commodity prices. This is unwelcome news, as natural resource-based industries supply more than half of Canada’s exports and play a pivotal role in driving business investment in several regions of the country. A world of lower prices for oil and other commodities is a world in which Canadians can look forward to smaller increases in real incomes than we enjoyed during the decade that began in 2003 – a decade that coincided with a broadly-based global commodity upcycle that is now a fading memory.
In the News This Week: Five Business and Economic Stories Affecting BC
BCBC recaps the weekly business and economic news stories relevant to British Columbia's economy.
Q1 Net Inflow of People to BC from Other Provinces the Strongest in Two Decades
BC’s comparatively healthy economic performance and attractive climate are luring people from other parts of Canada at a rate not seen in many years.
Migration has well established seasonal patterns, so to compare the movement of people over time the data can be seasonally adjusted or one can simply compare first quarter data to first quarter results from prior years. For simplicity, the graphs and analysis below adopt the latter approach and examine Q1 migration flows to BC for the years 1988 through 2015.
A Milestone Looms: BC’s Economy Will Soon Hit $250 Billion
A steadily expanding population and ongoing modest economic growth are combining to propel the value of both spending and production in the province to ever higher levels. As a result, we are on the cusp of a significant milestone: by the end of this year or early in 2016, the value of all measured economic activity in British Columbia will reach one-quarter of a trillion dollars ($250 billion).
BC Now a Growth Leader in Canada
According to recently released data from Statistics Canada, the BC economy grew by 2.6% in 2014. Against the backdrop of sluggish commodity markets, sub-par global growth and ongoing turbulence in Europe and some emerging economies, this is very respectable showing. In historical terms, it is just slightly ahead of the province’s 2.5% long-term average growth rate. And measured against other provinces, our economic expansion was second among the ten provinces last year.
Could Canada Experience a “Technical” Recession in 2015?
Last week’s economic growth report from Statistics Canada casts a cloud over the country’s economic outlook for 2015. Real GDP fell by 0.6% (annualized) in the first quarter, considerably worse than even forecasters of a pessimistic bent were expecting.
How Big is the Underground Economy?
Statistics Canada recently published new estimates of the size and composition of the “underground” economy. According to the agency, “underground” or “hidden economic” activity amounted to some $42 billion in 2012, equal to 2.3% of Canada’s gross domestic product (GDP). There is some variation among the provinces. In Prince Edward Island, the underground economy is pegged at 3.3% of GDP, while in Alberta it is less than 2%. The figure for British Columbia is 2.7% of GDP, which is somewhat higher than the national average.
Digital Infrastructure will continue to transform the Way People Work and Interact
The internet and wireless communication networks have become an essential part of society’s infrastructure in the 21st century. It has altered the way people work and interact and the way businesses operate and serve customers. And the transformation has been very rapid considering that in less than two decades the commercial internet has become fundamental to business operations. Already about 2.5 billion people are connected to the internet, a third of the world’s population; projections point to 4 billion users by 2020, equal to more than half of the global population
Businesses and Public Policy in Canada…Apparently Smaller is Better
The latest federal budget confirms and reinforces a prevailing belief among Canadian policy-makers that it is better for enterprises to stay small instead of expanding their top lines, bottom lines and employee head count. Budget 2015 signals that the Conservative government plans to lower the federal small business income tax rate from 11% to 9% by 2019. The rate reductions will come in four half-point steps, starting in January 2016. There is to be no change in the general federal corporate tax rate that applies to income above the small business threshold ($500,000) – that rate remains at 15%.
A Brief Look at the Environmental Goods and Services Sector in British Columbia
There are substantial challenges with establishing a coherent measure of the environmental goods and services (EGS) sector, not only in terms of definitions but also as a proportion of Gross Domestic Product, trade and employment in British Columbia.
For the most part there has always been an EGS sector. Its contribution to the economic activity is already embedded within the system of national accounts (SNA) used by statistical agencies in Canada and other countries. Two examples are water and wastewater treatment, whose contribution to economic activity is already counted as part of utilities or infrastructure spending. Other examples include technologies designed to improve vehicle fuel efficiency or to reduce emissions from power generation; these are captured in the existing data on manufacturing and utilities production and spending. Activities such as consulting and engineering services and hazardous waste management are also included in the SNA.
Rising Exports will Support Strong Economic Growth in BC
Exports are vital to sustaining and increasing BC’s standard of living because they allow us to pay for imports of goods and services not produced locally, they support hundreds of thousands of jobs, and they provide local firms with opportunities to grow and benefit from economies of scale. The discipline of having to compete in the international marketplace encourages firms to invest in productivity enhancing equipment and processes. In turn, this means that export-oriented industries tend to have above-average levels of productivity and therefore are able to pay above-average wages/benefits.
A Possible Strategy to Improve Post-Secondary Education and Training
The transition from school to work often poses significant challenges both for young people and the employers who hire them. Over time, the economy is generating fewer jobs and career options for young adults who lack any education or credentials beyond a high school diploma. For their part, many university and college graduates are finding the job market tough sledding, and a large proportion of graduates leave school with no clear idea as to what jobs or careers are available. Policy-makers and business leaders are voicing concerns over a perceived labour market mis-match between the supply of and the demand for skills. To the extent that such a mis-match exists and is sizable, it represents a loss of economic opportunity and implies that Canada is failing to fully mobilize its human resource potential.
A Post-Secondary Education Remains the Key Pathway to Higher Incomes
A recent analysis from the Organization for Economic Cooperation and Development (OECD) sheds useful light on the relationship between “tertiary” educational qualifications and employment opportunities and incomes.
Canada’s Environment for Entrepreneurship Compares Favourably
Entrepreneurship is an important source of innovation, economic growth and job creation. As such, greater attention is being paid to the role of public policy in fostering entrepreneurial activity. Governments and international organizations are working to better understand and measure the factors that influence and support entrepreneurial activity. The Organization for Economic Coordination and Development (OECD), for example, has developed a framework – Indicators of Entrepreneurial Determinants – that outlines some of the different factors it has identified as influencing entrepreneurship. The framework provides international benchmarks for factors linked to business entrepreneurship. Recognizing the need to better understand and quantify entrepreneurship, Industry Canada has prepared a research series that applies the OECD framework to the Canadian context. The first in the Industry Canada series examines how Canada performs on two of the OECD’s six categories: Regulatory Framework and Market Conditions.
Women in Small Sized Business in BC
Small businesses make up ~98% of businesses in Canada and provide more than 50% of the private sector payroll. The figures are very similar for British Columbia. It is not a large leap to discover that small businesses support a significant number of jobs and contribute a great deal to our GDP – about 26% in the case of BC.
Small Jump in BC’s Minimum Wage Makes Sense
The province has decided to hike the statutory minimum wage to $10.45/hour, effective September 1, 2015. This amounts to an increase of 20 cents/hour from today’s level. Going forward, the government proposes to adjust the minimum wage based on inflation, as measured by changes in the all-items Consumer Price Index – an approach which the Business Council of BC has previously recommended. Assuming that inflation averages around 2% per annum, BC’s minimum wage can be expected to climb by a little over 20 cents per year. Within five years, the minimum wage would be roughly $12/hour.
The Intersection of Environmental Policy and Economic Growth
The argument often goes: increased environmental regulation makes for a better society and facilitates economic growth. Some in the business community may disagree. To date there have been academic studies in support of both sides of the discussion but the answer has remained elusive. There is no doubt that much environmental regulation helps shape the conduct of individuals and firms by creating limits and articulating responsibility for actions and performance. But a proliferation of poorly designed and badly implemented regulations may have negative consequences for the economy, deterring investment and undercutting the competitive position of affected firms in trade-exposed industry sectors.
An Update on Incomes
Statistics Canada recently published a fresh batch of data taken from the Canadian Income Survey. The picture that emerges is similar to what we have reported before. British Columbia remains a middling income performer within the national context.
Interest Rates in Canada - Lower for Longer
This week’s decision by the Bank of Canada to trim its overnight lending rate by 25 basis points (from 1% to 0.75%) caught the markets by surprise and also embarrassed the country’s economic forecasting community.