British Columbians have long been known for dancing to their own tune. And now, that can be said for the province's economy, too. In Canada's new version of a two-speed recovery, the West Coast is zooming off on its own.
The simplified story of Canada's split-personality economy, for the longest time, was that resource-rich Alberta (and, to a lesser extent, the entire West) was thriving amid booming commodity prices, while the country's industrial-manufacturing heartland of Ontario and Quebec (and, for geographic convenience, everything east of that) suffered amid slumping export demand and an unhelpfully pumped-up Canadian dollar.
Then, neatly, the story took a U-turn – oil and other commodity prices plunged, and Alberta and the West became the weak link, while an export revival turned Ontario and the East into the engine pulling the country's economic train.
But what about that province to the west of the country's oldest dividing line – the Continental Divide? British Columbia, with its vast expanses of natural resources, is bucking the commodity slump to put together an economic run that is the envy of much of the rest of the country.
B.C.'s gross domestic product grew by 2.6 per cent in 2014, the second-highest provincial growth rate – and it was just getting warmed up. The Conference Board of Canada recently forecast that B.C. would top the country this year, with growth of 3.1 per cent – more than a full percentage point above the projected national rate of 1.9 per cent. Royal Bank of Canada's recent forecast also put B.C. at the head of the provincial class, at 3 per cent.
How is it pulling this off, when its neighbour just across the Rockies, Alberta, slides toward a recession? (The Conference Board projects Alberta's economy will shrink by 0.7 per cent this year.)
Well, it helps that B.C. is a poster child for the Bank of Canada's vision of Canada's economic recovery: Riding the crest of resurgent export demand, chiefly from the critical U.S. market, B.C. produces a lot of the things that an expanding U.S. economy hungers for.
Last year, B.C.'s exports, by value, jumped 7 per cent. Exports to the United States – its biggest market, accounting for about half of the province's total exports – surged a massive 16 per cent. That more than made up for slumps in demand from its two big Asian markets, China (down 5 per cent) and Japan (down 10 per cent), which were battered by slumping coal demand.
B.C. manufacturers are benefiting in a big way from the long-awaited resurgence in U.S. business investment and construction, as the U.S. economy gains serious momentum for the first time since the financial crisis. The province's biggest export to the U.S. market – wood products – surged more than 12 per cent last year. Machinery and equipment exports to the United States jumped nearly 14 per cent.
Last week's international trade report for April from Statistics Canada showed that overall B.C. exports to the United States have stumbled a bit (down 0.3 per cent for the year to date compared with the same period a year earlier), but are still handily outperforming the rest of the country (Canada's overall U.S. exports were down 3.2 per cent). B.C. provincial statistics show that despite the rough winter, hurt by harsh weather that slowed activity in many key U.S. regions, wood-products exports were up a blistering 20 per cent for the first four months of the year – and this amid declining lumber prices. Machinery and equipment exports were up 19 per cent. Exports to the United States of metallic minerals – another group of basic ingredients for business expansion and construction – were up 24 per cent.
Assuming the U.S. economic momentum gets back on its expected fast track after a difficult first quarter, British Columbia looks very much in line to benefit. It's a key source for the building blocks in the rebuilding and expansion of U.S. economic capacity. And unlike manufacturers in Central Canada, whose exports are heavily tilted toward the auto sector, B.C.'s key contributions to the rising U.S. demand aren't suffering from a sharp loss in market share to suppliers in other countries.
But another key driver of British Columbia's growth may be more precarious. In RBC's recent provincial forecasts, economist Laura Cooper noted that the province's hot housing market, which is particularly acute in its heavily populated Lower Mainland region (Vancouver and surroundings), remains a big contributor to the province's brisk economic activity. Rising home values, she said, are feeding household wealth – providing rocket fuel for consumer spending. B.C.'s retail sales in the first quarter were up more than 8 per cent from a year earlier; Ms. Cooper noted that car sales hit a record high in the quarter.
That's all fine and good as long as housing values hold up. But there are legitimate concerns that the West Coast real estate market is overheated. If a slowdown or correction is coming, so, too, is a slowdown in consumers' big contribution to B.C.'s growth – even if the export story remains bullish.