THE ECONOMIC FORECAST COUNCIL SURVEY, JUNE 2001

Background

The Minister of Finance is required by the Budget Transparency and Accountability Act to seek the advice of the Economic Forecast Council (the Council) on the outlook for the provincial economy, and to present their forecasts at the same time as the Estimates.

Since the January meeting of the Council there have been several changes in both the external economic situation and in fiscal policy in British Columbia. As a result, the Ministry of Finance surveyed the Council members to obtain a revised forecast.

Revised Forecast Council Survey Results for 2001

The Council, on average, expected British Columbia’s economy to grow 2.1 per cent in 2001 (see chart below). This was down from the Council’s average forecast of 2.4 per cent in January, consistent with a lower outlook for Canadian economic growth (from 2.9 per cent in January to 2.5 per cent in June).

The distribution of the forecasts also changed. In June, the frequency was equally distributed in the range of 1.75 to 2.75 per cent, whereas in January the forecasts were concentrated mainly in the 2.25 to 3.25 per cent range.

Revised Forecast Council Survey Results for 2002

The average forecast of the Council for British Columbia’s economic growth in 2002 was 3.2 per cent (see second chart), up from 2.9 per cent forecast in January.

The distribution of the forecasts was concentrated in the range of 2.75 to 3.75 per cent, while in January they were more evenly distributed between the range of 2.25 to 3.75 per cent.

The Council’s forecast for Canadian economic growth in 2002 was upgraded from 2.9 per cent in January to 3.4 per cent.

Where are the Main Changes?

Some of the factors that contributed to the lower estimates of provincial economic growth for 2001 included:

	Slower employment growth; employment growth was revised down from 1.6 per cent in January to 1.2 per cent in June. In addition, the Council provided a lower forecast of wages and salaries, down from 4.7 per cent to 4.3 per cent growth.
	A lower business investment profile — from 3.0 per cent growth to 0.1 per cent growth.
	The forecast for housing starts in 2001 is up from 6.7 per cent growth in January to 10.4 per cent growth in June. Retail sales are down slightly from 4.0 per cent to 3.9 per cent growth.

Many Council members expected the 25-per cent provincial personal income tax cut announced by the government in June to have a positive impact on provincial economic growth in 2001 and 2002. After these cuts were announced, nine Council members submitted revised forecasts to reflect the new fiscal policy direction. These revisions provided an increase to real GDP growth of 0.2 per cent in 2001 and 0.5 per cent in 2002 (averaged over the nine revisions). Prior to the tax-cut announcement, the Council’s GDP forecast was 2.0 per cent for 2001 and 2.9 per cent for 2002.

Similarly, the general sense of improvement in the overall economy seen by the Council led to the upward revision of economic growth in 2002. This is shown by upgrades in employment growth, corporate profits, business investment and consumer spending.

Risks to the Outlook

Some Council members noted the following factors are among the risks to the provincial outlook:

	A prolonged U.S. economic slowdown and its world-wide impact;
	The possible strengthening of the Canadian dollar against the U.S. dollar;
	Further export price declines;
	The handling of native land claims.

Some of the Key Medium-term Outlook Issues

In addition to issues such as tax competitiveness and rising energy prices that were raised by the Council in their January meeting, there are a number of other issues the Council members believe pose risks to the medium-term B.C. economic outlook. They are:

	The resolution of the softwood lumber dispute with the U.S.;
	Net out-migration to the rest of Canada from B.C.;
	The disparity in urban and rural growth;
	The prospects for economic recovery in Japan.

Survey Respondents

Survey Respondents: Paul Bowles .................................. University of Northern British Columbia
John DeWolf .................................................................. CCG Consulting
Don Drummond .............................................................. Toronto Dominion Bank
Jock Finlayson ................................................................ Business Council of British Columbia
Michael Goldberg ........................................................... University of British Columbia
Peter Hall ....................................................................... Conference Board of Canada
Warren Jestin .................................................................. Bank of Nova Scotia
Dale Orr ......................................................................... WEFA Canada
Tim O’Neill ..................................................................... Bank of Montreal
Helmut Pastrick ............................................................... Credit Union Central of British Columbia
George Pedersson ........................................................... G.A. Pedersson & Associates
Alister Smith .................................................................... Canadian Imperial Bank of Commerce
Carl Sonnen ..................................................................... Informetrica Ltd.
Ernie Stokes .................................................................... Stokes Economic Consulting
William Tharp .................................................................. M. Murenbeeld & Associates
Craig Wright .................................................................... Royal Bank

Council members absent from the survey:

John Helliwell ................................................................... University of British Columbia
David Park ....................................................................... Vancouver Board of Trade