Economic forecast: Region expected to weather virus better than most

As Greater Victoria businesses anxiously await further reopening of the economy, a new forecast Tuesday suggests the B.C. capital will weather the pandemic storm slightly better than most cities in Canada.

The Conference Board of Canada says Greater Victoria’s gross domestic product will fall 2.9% this year.

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Most other Canadian cities will feel a little more GDP pinch, the conference board says.

Calgary will see a 5.5% decline and Saskatoon is expected to fall 4.9%, Winnipeg and Vancouver 3.0%, and Montreal and Halifax will slip 3.6% and 3.4% respectively.

Ottawa has the best forecast with a 2.4% dip.

“Canada is in the midst of an economic crisis unlike anything that most of us alive today have ever experienced,” the conference board said in its report. “Our updated forecast has real GDP [across Canada] contracting at an annualized pace of almost 5% in the first quarter of this year. In the second quarter, the decline will hit 25%.

“To put this in perspective, until now, the largest hit to GDP in the past 60 years was the 8.7% contraction in the first quarter of 2009.”

The main factor is the measures to slow the spread of COVID-19. Physical distancing requirements and the closing of non-essential businesses have brought a large portion of the economy to a standstill.

The Conference Board said Greater Victoria’s temperate climate and a large government presence have enabled the region to post GDP growth faster than the national average for five consecutive years and put its population growth above the Canadian curve in each of the last eight years. The share of the region’s output generated by public administration is more than twice the national average.

“This will partially insulate the region from COVID-19’s economic damage, particularly the hits to its important tourism sector and industries related to the housing market,” the report said.

Greater Victoria’s GDP grew by an average of 2.8% annually during the five years to 2019, including 2.9% last year.

Greater Victoria’s housing market is expected to cool.

Last year’s housing starts were historically solid, although below the 42-year high reached in 2018.

“Inventories of unsold new homes were not high enough to discourage construction, the resale market was in a balanced position, and price growth had been accelerating,” said the report. This year, housing starts and the resale market will both cool temporarily due to the coronavirus shock. “But they will recover by next year at the latest, thanks to low interest rates and supportive federal programs.”

Housing starts are forecast to hit 2,400 units in 2021, down from a 2018 peak of nearly 4,300 units, but still above the 20-year average of 2,160, and the resale market should regain its balanced position.

The conference board said travel restrictions will stall Greater Victoria’s brisk net in-migration. “We expect the net number of newcomers to sag to roughly a fifth below its five-year average [almost 6,400 people] this year,” said the report. “This will trim Victoria’s population growth to about 4,800 in 2020, down from an annual average of around 6,400 during the five years to 2019.”

The finance, insurance and real estate sectors combine for Greater Victoria’s largest industry, as measured by economic output.

“This year, for the first time on record, it will shrink, falling 1%, pulled down by the weakening in the housing market,” the report said.

Rules around social distancing will hammer the region’s accommodation and food services sectors by 42.5% and its arts and entertainment industries by nearly 19%.

By contrast, publicly funded health care and public administration will expand, with health care growing by 1.6% and public administration up 2%.

The conference board said Victoria retail is forecast to suffer a second consecutive annual contraction this year, and also the steepest drop on record — 5.1%. The report said the retail industry will expand 6.5% in 2021.

“Next year looks much better,” the report said. “Improved housing markets should bolster [finance, insurance and real estate] output, while the winding down of the pandemic should allow at least some travel to resume and larger numbers of people to gather, boosting prospects for Victoria’s accommodation and food services and arts and entertainment sectors. Public administration and health care expansion should also accelerate.”

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