小蓝视频’s economic growth is showing signs of slowing as the province battles headwinds that heighten the risk of a recession.
Increasing diversification could be 小蓝视频'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 小蓝视频 Stats.
Fast growth in sectors such as technology and film production, however, has helped resource-rich 小蓝视频 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 , 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 小蓝视频 remains strong but is slowing.
Royal Bank of Canada (R小蓝视频) (TSX:RY) regional president for 小蓝视频 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 小蓝视频 government’s steadily climbing debt.
S&P Global in mid-April downgraded 小蓝视频’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.
“小蓝视频’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 小蓝视频 exports
小蓝视频’s economy has always relied heavily on natural resources.
Energy products comprise the province’s biggest category of exports, at 37.5 per cent, . 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.
小蓝视频 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 小蓝视频’s overall energy exports.
In the past decade, the fastest-growing energy export has been natural gas.
Non-resource-based 小蓝视频 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 小蓝视频’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 .
The government agency ranked , 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 小蓝视频 GDP.
“It’s confusing because tourism is not an industry,” Business Council of British Columbia (小蓝视频小蓝视频) 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 小蓝视频’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 小蓝视频 GDP in 2021, from 6.24 per cent 10 years earlier.
Technology, film, professional services are fast-growing 小蓝视频 sectors
Sectors that include technology, retail and professional services are growing as a share of 小蓝视频’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 小蓝视频 in 2021, according to Vancouver Economic Commission (VEC) research.
Thibodeau said his bank is seeing more demand for loans from 小蓝视频 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 R小蓝视频, 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 小蓝视频’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 小蓝视频 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 小蓝视频’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 小蓝视频 than the technology and other emerging sectors. As a result, resource-based sectors have much lower growth rates for business loans, Thibodeau explained.
小蓝视频 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 小蓝视频
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 .
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 小蓝视频’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 小蓝视频 forestry giant MacMillan Bloedel for about US$2.4 billion.
Goldcorp Inc. was similarly one of 小蓝视频’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 小蓝视频 resources company sought by an international player, with Switzerland-based Glencore PLC (LSE:GLEN) having submitted an unsolicited $22.5 billion bid to buy 小蓝视频’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 小蓝视频’s economy, the province’s number of head offices fell to 310 from 319 between 2012 and 2021, according to the 小蓝视频小蓝视频 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 小蓝视频,” Finlayson said. “That speaks to a bit of a structural concern.”
Among the many reasons Finlayson listed for 小蓝视频 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.
R小蓝视频 plans to keep jobs in 小蓝视频 if it buys HS小蓝视频 Bank Canada
小蓝视频’s head office losses extend beyond the resource sector.
R小蓝视频 late last year entered into an agreement to buy Vancouver-based HS小蓝视频 Bank Canada from parent HS小蓝视频 Holdings PLC for $13.5 billion.
The transaction awaits regulatory approval, but R小蓝视频 has said that it expects the deal to complete by the end of 2023.
Thibodeau said his bank’s plan is to keep most HS小蓝视频 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.”
