Thursday, March 15, 2012

BC Economic Forecast Vancouver Island


 Vancouver Island and Coast Economic Region

VANCOUVER, BC, Mar. 15, 2012/ Troy Media/ – This region is forecast to see a fairly stable labour market through 2013, with modest job growth in primary resources and level manufacturing employment. Little growth in tourist activity is forecast.

Fiscal drag is expected to dampen economic output and public sector non-residential building declines. Private sector non-residential building should increase. Subdued net in-migration should lead to overall population growth of 0.8 per cent per year.

The resale housing market is predicted to remain fairly stable. Victoria is the seat of the provincial government, while tourism and retirement are also notable drivers of regional income.
The region’s industry concentrations are in public administration, accommodation/food and health-social services. The region’s education, manufacturing and primary resource industries have shrunk over time relative to the rest of B.C. and Canada, while retail-wholesale trade has grown.

Metro Victoria and the southern island have a less cyclical, service-based, urban economy than the rest of the island, which is a more cyclical, resource-based, rural economy.

The eastern mid-island is also more urbanized than the outlying areas. Urban areas generally have a stronger growth trend than elsewhere.


The provincial government’s plan to balance its budget is a significant determinant of provincial government employment, wages and salaries. The budget deficit is projected at $2.5 billion in fiscal 2011/12 and projected to balance by 2013/14 at the earliest. Provincial government employment is thus predicted to decline by perhaps 1 per cent this year and next, while total wages and salaries inch down in real terms.

This fiscal drag is expected to dampen economic output, mainly on southern Vancouver Island. Tourism, whether for personal or business purposes, mainly impacts the transportation, accommodation/food and recreation industries.

Hard hit by the last recession, tourist activity began to recover in 2011. The number of ferry passengers is on a long-term downward trend but is predicted to remain at 2011 levels through 2013. Passenger traffic at regional airports was unchanged in 2011 and is predicted to see below average growth. Room revenues are estimated to have grown 5 per cent in 2011, ending a three-year down trend, and are predicted to see below average growth.

The factors dampening tourism sector growth include high and rising household debt. This induces balance sheet repair, which, in the absence of strong employment and income growth, takes years of subdued discretionary spending. A USD/CAD exchange rate around par slows international visits, as does the unfolding slowdown in world economic growth.
Employment in accommodation and food services on Vancouver Island, an indicator of tourist activity, is forecast to dip 2 per cent in 2012, following a large surge in 2011, before rising 2 per cent in 2013. However, employment in these industries has been trending down since 2005.

Retirement income accounts for a greater proportion of personal income on Vancouver Island than in any other region of B.C. Indeed, almost all of the Island’s population growth so far this century has been among persons aged 56 and over. This age group will continue to grow, rising 2.7 per cent per year through 2013.

Employment in health care and social services on the island is forecast to rise 2 per cent this year and 3 per cent in 2013. Total CPP and OAS income on the island is forecast to rise by 5 per cent to 6 per cent annually.

Aggregate retirement income growth is restrained by investment income. Bond and deposit yields are at historic lows and dividends are only now beginning to increase.

Total investment income in B.C., excluding capital gains, peaked in 2008 and dropped 10 per cent over the next two years. Investment income is forecast to grow just 1 per cent this year and 2 per cent in 2013, following a 4 per cent rise last year.

Sawn lumber production in the Coastal Forest region is forecast to increase 5 per cent per year through 2013 following a 13 per cent rise last year. This in turn drives modest growth in employment in primary resource industries on the island of 1 per cent in 2012 and 3 per cent in 2013, following a 29 per cent rebound last year.

Employment in manufacturing on the island is forecast to remain level through 2013. Job growth related to recent federal ship building contracts is not expected to materially impact Victoria shipyards until after 2013. The average level of employment in the Vancouver Island and Coast region in 2011 declined 5 per cent from 2010, the largest year-over-year drop since 2001. Job declines were led by health-social services, retail/wholesale trade, educational services, finance-real estate services and construction. Lower employment in these industries was partly offset by job gains in accommodation-food services, information-recreation services and forestry-fishing-mining industries.

Given the outlook for employment, especially in manufacturing, accommodation-food services, and health care-social services, total employment growth in the region is forecast at 1 per cent in 2012 and less than 1 per cent in 2013. The labour force is forecast to grow roughly on par with employment growth. The region’s unemployment rate will thus average 7.6 per cent in 2012 and 7.5 per cent in 2013, similar to the 7.7 per cent rate in 2011.

The outlook is for subdued net in-migration to B.C. through 2013. Net in-migration to the Vancouver Island and Coast region is forecast at 5,344 persons in 2012 rising to 6,176 persons in 2013 on a larger retiree in-flow from Alberta and the B.C. lower mainland. There were an estimated 5,365 net in-migrants in 2011. Overall population growth is forecast to rise to 0.8 per cent per year through 2013, up from an estimated 0.6 per cent last year.

Given our outlook for population growth and the labour market, Vancouver Island’s resale housing market is predicted to remain fairly stable through 2013. Unit sales are forecast to edge up 3 per cent this year and 4 per cent in 2013, following a 6 per cent drop in 2011. The median sale price edges lower this year and rises 2 per cent next year following a 2 per cent dip last year. The new housing market is predicted to follow similar trends with residential building permits (dwelling units) forecast to fall 3 per cent in 2012 before rising 3 per cent in 2013, following an 11 per cent decline in 2011.

The total estimated capital cost of major projects under construction in the region averaged $8 billion in 2011, down 11 per cent year-over-year. We predict this value will decline in 2012 before slowly rising through 2013. Almost all of these projects are construction of buildings, especially residential buildings, most mixed with commercial components such as retail, office, hotel or resort. The remaining major projects under construction include airport, seaport, educational, health care and power generation structures.

The total estimated capital cost of proposed but not yet started projects in the region averaged $17 billion in 2011, down 2 per cent year-over-year, the third straight annual decline. We predict this value will slowly rise from 2012 through 2013. Almost half of these proposed projects are electric power generators or transmission lines, while most of the rest are residential buildings, most mixed with retail, office, hotel or resort components. The remaining proposed projects are mostly transportation and municipal service infrastructure.

With government budgets in deficit-reduction mode, public sector non-residential building permits issued in the Vancouver Island and Coast region are forecast to decline 21 per cent in 2012 before rising a slight 2 per cent in 2013 following a 1 per cent dip in 2011. Most transportation and municipal service projects are engineering construction are not usually covered in building permit values.

The estimated capital cost of proposed major private sector non-residential buildings in the Vancouver Island and Coast region has trended up over the past two years. This leads to forecast growth in private sector non-residential building permits of 3 per cent in 2012 and 5 per cent in 2013, following a 9 per cent decline in 2011. Most of this construction will be for retail, office or other commercial use, mostly in mixed-use residential projects.

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