A steadily expanding population and ongoing modest economic growth are combining to propel the value of both spending and production in British Columbia to ever higher levels. As a result, the province is on the cusp of a significant milestone: By the end of this year, or early in 2016, the value of all measured spending and production in B.C. will reach $250 billion.
This figure refers to aggregate spending or output in the economy, often termed “nominal” gross domestic product. It differs from “real” or inflation-adjusted GDP, which is calibrated in 2007 dollars and is therefore somewhat smaller than nominal GDP. For example, in 2014 British Columbia’s nominal GDP was slightly less than $239 billion, while “real” GDP, stated in constant 2007 dollars, was about $220 billion. Nominal GDP captures current economic activity without adjusting for the effect of price changes and past inflation.
Returning to the value of nominal GDP in British Columbia, this is expected to increase by approximately four per cent in 2015 from the level set during the previous year, putting it just a smidgen below $250 billion. By the end of the first quarter of next year, nominal GDP will have eclipsed the quarter-of-a-trillion-dollar mark.
It is important to recognize that population growth plays a role in pushing up economy-wide spending and production. B.C.’s population is increasing by about 1.2 per cent annually, a fairly fast rate of growth by Canadian standards, and well above the growth rates recorded in many other affluent jurisdictions. More people living in the province means a greater demand for goods, services and housing, driving the value of consumer spending higher year after year.
At the same time, more households also translates into a growing supply of labour and more jobs for the large fraction of the population that is employed. Of course, some portion of our population doesn’t work and is supported by pensions and other sources of non-employment income, but these people also require housing and consumer goods and services, many of which are produced and provided by businesses operating within British Columbia.
Regions with stagnant or declining populations have a harder time generating “economic growth” as defined by government statistical agencies. Japan and Italy are prominent examples of how a flat or shrinking population can act as a substantial headwind to economic activity, dampen new entrepreneurial wealth creation, and depress the demand for housing and other locally provided goods and services.
Dynamic economies typically have expanding populations and labour forces as well as household sectors that require more and better goods and services.
Once population growth is removed from the equation, demand increases at a slower pace and national/regional economies can become sclerotic. In the B.C. context, it is worth noting that the heavily urbanized Lower Mainland region usually records stronger GDP growth than other parts of the province, mainly because of a faster-rising population and labour force.
A growing population and the impact this has in boosting nominal GDP are positive features of the B.C. business environment from the vantage point of local entrepreneurs and company owners/managers.
It is harder to sustain and expand many types of business — export-oriented businesses being the main exception — when the domestic market is fixed in size or contracting in an absolute sense. Yet that is the reality facing firms and entrepreneurs in many other parts of the developed world, including the Atlantic provinces in Canada and some regions of the United States.
Jock Finlayson is executive vice-president of the Business Council of British Columbia.
