The British Columbia economy continued to
operate at a high level of output and employment in 1995, even
though growth slowed from 1994's rapid pace. Real gross domestic
product increased an estimated 2.7 per cent. Employment rose
by 29,000 persons and the unemployment rate fell to 9.0 per cent.
Although the average inflation rate during 1995 rose slightly
to 2.3 per cent, by December the year-over-year rate was just
1.5 per cent.
Economic conditions were choppy during the
year, with most of the growth coming in the first and third quarters.
Labour income rose 5.3 per cent during the
year reflecting 2 per cent growth in total hours worked, a 3 per
cent increase in estimated average hourly compensation and a shift toward higher-paying full-time jobs.
Corporate pretax profits rose an estimated
19 per cent in 1995 following a 59 per cent increase in 1994.
Profits rose sharply in the resource and financial services industries,
while intense competition eroded profits in retailing, transportation
and communications, and real estate.
Interest, dividend and other investment income
is estimated to have risen sharply as a result of higher interest
rates in 1995 and rising corporate earnings. Transfer payment
income from governments (such as unemployment insurance and income
assistance) grew 3.6 per cent. Small business and farm income
rose more than 5 per cent.
Consumer spending and net exports were the
major contributors to growth in real GDP in 1995, as shown in
Table A1. Real investment in fixed capital fell because of a
sharp decline in housing construction during the year. However,
non-residential investment increased 1.6 per cent in real terms.
Government expenditure showed little growth in real terms, owing
to continued restraint at all levels of government. Real consumer
spending grew at half 1994's rapid pace, but was still a major
contributor to real GDP growth in 1995. Net exports rose sharply
due to strong growth in export volumes and slower growth in imports.
Late in the year, softening domestic and foreign demand boosted
inventories, adding to 1995 output but foreshadowing reduced production
|Change, $1986 billions||% change from 1994|
|Final Domestic Demand||0.9||1.1|
*Change as a percentage of 1994 real GDP
**Includes residual error.
Employment and output in the goods-producing
sector of the economy declined in 1995. Pulp and paper manufacturing
output declined while employment rose. A decline in wood manufacturing
employment was partly offset by gains in primary forestry/logging
employment. Activity and employment in construction fell due
to the slump in residential starts. Fishing activity was sharply
curtailed due to a cyclical decline in Canadian salmon stocks,
although fish processing increased slightly.
Strong growth continued in service-sector
employment, offsetting losses in the goods-producing industries.
There were large gains in transportation and communications employment
that reflected an increased number of firms. Wholesale and retail
trade employment returned to the peak reached in 1993, despite
slower sales growth. business services employment continued to
boost the number of jobs in the community, business and personal
service sector. Employment in public administration and finance,
insurance and real estate was down slightly, reflecting downsizing
by governments and financial services firms and a decline in the
number of real estate agents in the face of a weak housing market.
The economy is expected to grow 2.7 per cent
in 1996, about the same pace as in 1995. The pattern will be
different in 1996 with growth starting out slowly and then picking
up as the year proceeds. By mid-year, the Canadian, Japanese
and U.S. economies should be growing at a faster pace, boosting
demand for British Columbia's exports. The inventory adjustment
in the housing sector should have been completed, leading to a
pick up in construction in the second half of 1996. Inflation
should remain under 2 per cent, despite higher food and energy
Major Markets: British
Columbia's key markets are the rest of Canada, the United States
and Japan, which together absorb 85 per cent of the province's
exports. These three markets are expected to grow slightly faster
than in 1995. The main factor in the improvement is the Japanese
economy, which is expected to grow 2 per cent as compared to 0.7
per cent in 1995. Growth in Canada and the U.S. is expected to
be in the 2.0 to 2.5 per cent range, similar to 1995.
Export Prices: Prices
for the province's goods and services exports rose an average
6.5 per cent in 1995. This was largely the result of sharp increases
in the prices of key resource products, as shown by the 13 per
cent jump in the Ministry of Finance and Corporate Relations export
commodity price index. Recently, the prices of several key commodities
including pulp, newsprint and copper have fallen below their 1995
peaks. Even so, export prices are forecast to be 2 per
cent higher on average in 1996, largely reflecting the sharp rise
in prices during 1995 and an expected rebound in lumber prices.
Financial Markets: Monetatry
conditions have been more favourable early in 1996 than they were
a year ago. Canadian short-term interest rates fell considerably
after the Quebec referendum and are now slightly below U.S. rates;
long-term interest rates contain a substantial, although narrowing,
risk premium relative to U.S. rates. Interest rates have risen
in the United States, but should remain low enough in Canada to
spark faster growth as 1996 proceeds.
Employment is expected to grow 2.3 per cent
in 1996, on both a "jobs" and "total hours worked"
basis. The labour force will grow about the same pace, reducing
the unemployment rate to under 9 per cent. Net in-migration is
forecast to total 61,000 people again this year, and a greater
proportion will continue to come from overseas rather than from
other parts of Canada.
Growth in hourly earnings of 2.5 per cent
should result in an increase in labour income of 4.7 per cent.
Interest, dividend and miscellaneous investment income is expected
to increase 3.2 per cent, much less than in 1995 due to lower
average interest rates. Small business and farm income is expected
to grow 4.5 per cent, reflecting renewed growth in consumer spending
and growth in business services.
Corporate pretax profits are the most volatile
of the major components of aggregate income, and their 1996 outlook
depends heavily on the path of natural resource prices. Although
profits rose sharply in 1994 and 1995, they did so from a very
low level. As a result, corporate profits in the current expansion
have yet to reach the peaks attained in earlier cycles, relative
to provincial GDP. Nevertheless, the recent declines in copper,
pulp and newsprint prices, if sustained through 1996, could result
in a decline in profits. Some analysts think that the
downturn in prices will be temporary and reverse by mid-year.
If so, profits would continue to rise in 1996, although at a slower
rate than last year.
In recent years, increases in productivity
("output per person-hour" see
Chart A2) have contributed
to slower growth in costs and rising corporate profits. Gains
in productivity are the foundation for improving living standards
in the future.
Real GDP is
expected to grow 2.7 per cent in 1996 with the provincial inflation
rate in the 2 per cent range. This section provides details on
the outlook for the components of real GDP presented in Table A2.
Final domestic demand: This
component of real GDP consists of personal and government expenditures
on goods and services and investment in structures and equipment.
In British Columbia, the consumer sector
has been more buoyant than it has been nationally. Recent surveys
indicate that, although consumer confidence in British Columbia
remains higher than in other regions of Canada, individual households
do not appear to be planning to spend more than they did in 1995.
These surveys are consistent with consumer spending growth that
is slightly in excess of population growth. Therefore, real consumer
expenditure should grow 3 per cent in 1996, reflecting continued
high levels of in-migration to British Columbia, and strong tourism
activity. Despite recent increases, interest rates should be
much lower on average than in 1995, leading to a turnaround in
the housing market in the second half of the year and increased
sales of autos, furniture and appliances and other durable goods.
Spending at all levels of government remains
constrained by deficit and debt reduction targets. Growth in
total expenditure by all levels of government is expected to be
close to zero in real terms in 1996.
Non-residential investment is forecast to
increase 2.4 per cent in real terms in 1996. However, total capital
investment will continue to be held back by the housing market.
Even with a second-half rebound in housing starts, residential
investment will remain below the peak reached in 1994. As a result,
residential and non-residential investment combined is expected
to grow 1 per cent in 1995.
|Gross Domestic Product (percentage change in current dollars)||5.1||6.7||4.8||4.1|
|Real Gross Domestic Product (percentage change in 1986 dollars)||3.0||2.7||2.7||2.4|
|Exports of Goods and Services||3.8||6.3||2.5||2.8|
|Imports of Goods and Services||2.1||2.7||1.8||2.7|
|Population (percentage change)||2.6||2.6||2.5||2.2|
|Labour Force (thousands)||1,957||1,935||1,978||2,024|
|Unemployment Rate (per cent)||9.2||9.0||8.9||8.8|
|Retail Sales (millions of current dollars)||30,490||30,532||31,840||33,020|
|Labour Income(2) (millions of current dollars)||57,530||56,478||59,130||61,500|
|Corporate Pre-tax Profits|
|(millions of current dollars)||7,560||7,600||7,980||8,380|
|Housing Starts (units)||31,000||27,057||25,100||28,200|
|Consumer Price Index (1986=100)||141.0||137.3||139.8||142.4|
|Economic Growth (per cent)|
|Canadian Interest Rates (per cent; annual average)|
|10 year and over||9.3||8.4||7.6||7.9|
|U.S. cents/Canadian dollar||71.2||72.9||73.1||74.0|
External trade: Export
volumes are forecast to grow 2.5 per cent, slightly faster than
economic growth in the province's key export markets. Import
volumes will grow 1.8 per cent, reflecting slower growth in plant
and equipment investment than occurred in 1995. After making
a large contribution to 1995 real GDP growth, net exports (export
volume minus import volume) should add 0.1 per cent in 1996.
Inventory accumulation: Business
conditions surveys and developments in the retail and forest products
sectors suggest that many firms entered 1996 with inventories
at undesirably high levels. Discounting eliminated the bulk of
retail inventories during the first quarter of 1996. However,
pulp and paper inventories accumulated during the second half
of 1995, which will result in lower production in the first half
After contributing to stellar profit growth
the last two years, pulp and paper prices levelled off late in
1995 and declined early in 1996. Some industry analysts believe
that the Atlanta Olympics and the U.S. Presidential election will
boost advertising and newsprint prices in the second half of the
year. Profits and employment in this industry are likely to be
under pressure this year. However, wood prices are expected to
be higher than last year. In addition, although the agreement
on softwood lumber may result in reduced exports to the United
States, this could be offset by increased demand from other foreign
markets such as Japan.
The residential construction industry will
continue to experience slow conditions until demand for existing
and new housing strengthens. The fishing industry faces another
difficult year due to the small number of salmon expected to return
to British Columbia waters. Many agricultural prices continue
to rise rapidly, which should benefit the farm sector. Metals
prices are expected to remain high, leading to another profitable
year for many mining companies.
In the business and personal services sector,
activity will continue to be stimulated by inmigration and the
growth in contracting-out by larger companies. Intense competition
in the airline business has resulted in two new low-fare carriers
starting service in British Columbia this year, the two existing
major airlines adding flights and new cross-border services being
provided by U.S. carriers. Along with heightened competition
along the telecommunications "information highway",
this should result in continued strong growth in output and employment
in the transportation and communications sector. Wholesale and
retail trade activity should increase as consumer spending picks
up following the second-half slowdown in 1995. Growth in finance,
insurance and real estate activity will be determined largely
by the speed of the recovery in the housing market.
The Ministry of Finance and Corporate Relations
forecast projects 2.7 per cent growth in British Columbia's economy
in 1996. The chart compares the average of forecasts for British
Columbia and other provinces.
The economy is expected to grow about 2.5
per cent, in line with growth in the major economies. With another
year of strong employment growth of 2.4 per cent, the unemployment
rate will continue to fall. Inflation is expected to remain in
the 1.5 to 2.0 per cent range. Capital investment is expected
to grow strongly, led by a large increase in housing starts.
Early in 1996, there were fears that a recession
was beginning in North America. Short-term interest rates fell
due to the perceived weakness, although the stock market continued
to rise and long-term interest rates began creeping up. By
mid-March, it appeared that the expansion had resumed in both
the Canadian and U.S. economies. Concerns that inflation might
accelerate due to rising prices for food and energy continued
to boost U.S. long-term interest rates. This poses a minimal
threat to the Canadian and British Columbia forecasts since the
national economy is operating some 3 percentage points below potential
and there is little reason for Canadian interest rates to continue
rising. In fact, interest rates could fall in such an environment.
There are a number of other potential developments
that could lead to stronger growth than forecast:
Uncertainties in the outlook include:
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