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January 12, 2011 09:47 ET

British Columbia's Economic Growth to Outpace National Average, Says BMO Economics

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Jan. 12, 2011) - B.C. is expected to outpace the national average with a growth rate of 3.1 per cent in 2011, after a solid 3.8 per cent rate in 2010, according to the Provincial Monitor report released today by BMO Capital Markets Economics.

"B.C.'s growth was stoked in the first half of 2010 by the 2010 Olympic Games, rebounding residential construction activity and strong consumer spending," said Robert Kavcic, Economist, BMO Capital Markets. "By mid year, tempered by the introduction of the HST, consumer spending and, especially, housing slowed."

"Our commercial customers are generally optimistic about their business prospects, and there is a growing confidence that consumer spending and business investments will become a driver of growth and job creation in 2011," said Derral Moriyama, Senior Vice-President, Commercial, Greater Vancouver District, BMO Bank of Montreal. "In particular, as the construction sector, forestry, and international trade sectors move forward, we see a growing customer interest in upgrading their infrastructure and retooling their business processes for growth."

After growing at a 3.9 per cent annual rate in the first quarter, retail sales contracted in each of the second and third quarters, but are currently still 2.4 per cent above year-ago levels.

Meantime, the housing market roller coaster turned sharply lower by mid year, and sales were more than 40 per cent below year-ago levels by July. "This correction was expected given the amount of demand pulled forward ahead of the July 1st HST introduction and Bank of Canada rate hikes," noted Mr. Kavcic.

As a result, residential construction activity has levelled off, but housing starts were still 70 per cent above prior year levels in 2010. Going forward, more balanced market conditions should lead to steady activity in this sector, including flat housing starts in 2011.

Forestry has come back from the brink, helped by higher lumber prices and stable U.S. housing starts—exports in this sector were up 19 per cent year-over-year through October, while exports of industrial materials and energy products are also up about 22 per cent year-over-year. In a sign that global trade has picked up (to B.C.'s benefit), outbound container traffic at the Port of Vancouver was up 18 per cent year-over-year through October. This, and continued activity in the commodity space should help drive above-average growth in 2011.

The provincial government increased its fiscal 2010/2011 deficit projection to $1.7 billion (still less than 1 per cent of GDP) from the prior estimate of $1.38 billion, but the shortfall is about in line with the original budget projection.

The complete report can be found at www.bmocm.com/economics.

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