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B.C.’s economy diversifying as growth slows

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RBC’s B.C. president Martin Thibodeau told BIV that his bank plans is to keep most HSBC Bank Canada corporate head office jobs in Vancouver if it closes deal to buy that bank | Chung Chow

B.C.’s economic growth is showing signs of slowing as the province battles headwinds that heighten the risk of a recession.

Increasing diversification could be B.C.’s ace in the hole.

The province has long had a more diversified economy than Alberta, but its level of diversification among provinces has been middling – fifth out of 10, according to data collector BC Stats.

Fast growth in sectors such as technology and film production, however, has helped resource-rich B.C. diversify its economy, hedge against commodity-price downturns and be better able to weather adversity.

The Economic Forecast Council, a 13-member council of private-sector forecasters from throughout Canada, anticipates that the province’s economy will slow to 0.4-per-cent gross domestic product (GDP) growth in 2023, down 2.4 percentage points from 2.8-per-cent growth in 2022, and down 5.7 percentage points from 6.1-per-cent growth in 2021.

With that kind of economic slowdown, it is not unreasonable to expect that the province could slightly underperform expectations and experience two consecutive quarters of GDP declines – the standard definition of recession.

Businesses continue to grapple with the effects of the Bank of Canada rapidly hiking its policy interest rate to 4.5 per cent. Banks tend to lend money at approximately two per cent more than that rate.

Business loan growth in B.C. remains strong but is slowing.

Royal Bank of Canada (RBC) (TSX:RY) regional president for B.C. Martin Thibodeau told BIV that the value of his bank’s outstanding business loans in the province increased 17 per cent year over year at the end of March. In March 2022, the annual business loan growth rate was 20 per cent.

One wildcard for the economy could be the B.C. government’s steadily climbing debt.

S&P Global in mid-April downgraded B.C.’s credit rating to AA from AA+, and while the credit-rating agency kept the province’s short-term issuer credit rating stable at A-1+, it remains to be seen how a lower credit rating and interest rate hikes will affect the size of payments on the province’s more than $107 billion in taxpayer-supported debt.

“B.C.’s credit rating is still extremely strong [… but] the cost of money is more expensive today than a year ago,” Thibodeau said.

Natural resources dominate B.C. exports

B.C.’s economy has always relied heavily on natural resources.

Energy products comprise the province’s biggest category of exports, at 37.5 per cent, according to BC Stats. Other commodity exports include wood products (17.1 per cent), metallic mineral products (9.6 per cent) and pulp and paper products (6.8 per cent). Combined, that adds up to nearly three-quarters (71 per cent) of total exports.

BC Stats categorizes metallurgical coal as an energy export, even though it is mostly exported to China to make steel. It comprises more than half of B.C.’s overall energy exports.

In the past decade, the fastest-growing energy export has been natural gas.

Non-resource-based B.C. exports include machinery and equipment (9.9 per cent), agriculture and other non-fish products (seven per cent), fish and seafood (2.4 per cent) and fabricated metal products (2.8 per cent).

Statistics Canada estimated that, in 2021, about a quarter of B.C.’s economic production is based on goods-producing sectors, and the rest relies on service-sector industries.

Unfortunately, data that breaks down the province’s GDP output by sector can be misleading because of how Statistics Canada constructs categories.

The government agency ranked real estate as the province’s biggest source of GDP, at 18.56 per cent in 2021, but that category includes all money paid in rent as part of the calculation.

Film production is in the information and cultural industries basket, which comprised 3.23 per cent of the province’s 2021 GDP, while arts, entertainment and recreation make up 0.6 per cent of B.C. GDP.

“It’s confusing because tourism is not an industry,” Business Council of British Columbia (BCBC) senior policy adviser Jock Finlayson said of the Statistics Canada GDP sector breakdowns.

“You have to construct estimates that are based on certain methodologies.”

Quirks aside, Statistics Canada’s GDP data supports the theory that B.C.’s reliance on energy and mining has weakened over the past decade.

Energy comprised 7.36 per cent of the province’s GDP in 2011, according to Statistics Canada. By 2021, that percentage had fallen to 5.38 per cent. Similarly, mining, quarrying and oil and gas extraction fell to 4.35 per cent of B.C. GDP in 2021, from 6.24 per cent 10 years earlier.

Technology, film, professional services are fast-growing B.C. sectors

Sectors that include technology, retail and professional services are growing as a share of B.C.’s economy, according to Statistics Canada data. Still, these growth rates pale in comparison with anecdotal reports and industry data.

The Statistics Canada basket that includes film production fell slightly over the past decade, even though a record $4.8 billion was spent on film, TV, visual effects and animation in B.C. in 2021, according to Vancouver Economic Commission (VEC) research.

Thibodeau said his bank is seeing more demand for loans from B.C. entrepreneurs in those sectors.

“Our tech business is growing – tech and clean tech is growing exponentially,” he said. “Our film industry [lending] is very, very strong. We have a huge health-care practice at RBC, serving all healthcare professionals, like dentists and doctors, and any professionals. It is really growing, so there is demand there.”

Statistics Canada had retail accounting for 5.83 per cent of B.C.’s GDP in 2022, up from 5.71 per cent 10 years earlier.

Technology is harder to segment out, but the information and communication technology sector represented 4.63 per cent of the B.C. economy in 2021, up from 4.23 per cent in 2011.

The professional, scientific and technical services sector saw the biggest leap: To 7.3 per cent of B.C.’s economy in 2021, from 5.56 per cent a decade earlier.

Energy, mining and forestry are cyclical industries, and they are much larger in B.C. than the technology and other emerging sectors. As a result, resource-based sectors have much lower growth rates for business loans, Thibodeau explained.

B.C. struggling to attract head offices

Having a large resource sector has meant that energy, forestry and mining companies have through the decades headquartered their businesses in B.C.

Overall, however, the province has struggled to attract corporate head offices. It has fewer head offices per capita than other provinces, smaller head offices on average and a staff count at those offices that is on the decline, according to a recent Business Council of British Columbia (BCBC) report.

One trend has been for companies to grow and reach a certain size, only to get acquired by a company headquartered elsewhere.

Westcoast Energy Inc., for example, was B.C.’s largest public company when North Carolina’s Duke Energy Corp. (NYSE:DUK) bought it for approximately US$8.5 billion in 2002.

That followed Seattle-based Weyerhaeuser Co. (NYSE:WY) in 1999 snapping up B.C. forestry giant MacMillan Bloedel for about US$2.4 billion.

Goldcorp Inc. was similarly one of B.C.’s largest public companies when Colorado’s Newmont Mining Corp. (NYSE:NEM) bought the venture for about US$10 billion in an all-stock deal in 2019.

Teck Resources Ltd. (NYSE:TECK; TSX:TECK-B) is the latest example of a large B.C. resources company sought by an international player, with Switzerland-based Glencore PLC (LSE:GLEN) having submitted an unsolicited $22.5 billion bid to buy B.C.’s second-largest public company ranked by revenue.

Head offices are important for an economy because they provide well-paying jobs and business for local suppliers and professional-services firms. Large corporations often also provide a disproportionate amount of philanthropy and money to support local causes and events in cities where they are based.

Teck, for example, in 2010 donated $2.5 million to support the St. Paul’s Hospital emergency department. In 2021, it donated another $10 million to help the hospital build a new emergency department at its future False Creek Flats site.

Glencore has said that if it completes a deal to buy Teck, it might locate its new subsidiary’s Canadian head office in Toronto.

Unfortunately for B.C.’s economy, the province’s number of head offices fell to 310 from 319 between 2012 and 2021, according to the BCBC report.

“The economy grew, and the population grew substantially over that decade, and the number of firms also expanded, yet the number of mid-size and larger companies’ head offices didn’t grow in B.C.,” Finlayson said. “That speaks to a bit of a structural concern.”

Among the many reasons Finlayson listed for B.C. failing to attract head offices are that the province:
• is far removed from the country’s major population and financial centres;
• has heavy government involvement in various many sectors of the economy;
• has higher tax rates than other jurisdictions for skilled managers, professionals and scientists;
• has a small-business tax rate that increase sixfold to 12 per cent from two per cent once an income threshold has been reached; and
• has high land costs and scarce real estate.

Canada has an “inefficient and arcane corporate tax system,” and unwieldly regulatory regime for activities such as internal trade, he added.

RBC plans to keep jobs in B.C. if it buys HSBC Bank Canada

B.C.’s head office losses extend beyond the resource sector.

RBC late last year entered into an agreement to buy Vancouver-based HSBC Bank Canada from parent HSBC Holdings PLC for $13.5 billion.

The transaction awaits regulatory approval, but RBC has said that it expects the deal to complete by the end of 2023.

Thibodeau said his bank’s plan is to keep most HSBC corporate head-office jobs in Vancouver.

“We will have a huge hub of jobs here on the West Coast,” he said.

“We are going to have not only the client-facing jobs, but a huge hub of jobs in technology, risk management and operations to support western provinces, and the West Coast – from Vancouver to San Diego, as we have a business in California.”

gkorstrom@biv.com

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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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