The following piece by ICBA Chief Economist Jock Finlayson first appeared in Business in Vancouver on Dec. 19, 2024.
As the clock ticks down on a turbulent 2024, Premier David Eby and his recently installed cabinet are staring at an uncertain and unforgiving economic landscape. While the province’s economy has been growing, the population has been increasing faster -– resulting in a downward trend in the value of both economic output and real income, measured on a per person basis. The same story has been unfolding across the country since 2022.
Looking ahead, B.C. policymakers and the economic forecasters toiling in the Ministry of Finance must contend with two big external unknowns. The first is the return of Donald Trump. The incoming U.S. President has made a host of jaw-dropping promises, among them a pledge to slap a 25 per cent tariff on all merchandise imports from Canada and Mexico on day one of his administration. Should he follow through with that plan, Canada’s economy will be plunged into an immediate recession. B.C. can expect a similar fate, notwithstanding our somewhat more diversified mix of trading partners.
Last year, B.C. sold $30.5 billion of goods to the U.S., along with more than $10 billion in “services”, together representing well over half of our total international exports. The B.C. industries that will take the biggest hit from possible Trumpian tariffs include wood products, machinery and equipment, other categories of manufactured goods, metallic minerals, energy, and agri-food. The threatened across-the-board tariffs may never materialize, of course. However, Trump’s Presidency portends rocky times for the Canada-U.S. relationship. The near certainty of increased U.S. restrictions on the ability of B.C. exporters to sell to their principal foreign market means many Canadian companies looking to do business with the U.S. will be tempted to re-direct their capital and business growth ambitions to the south, thereby dampening domestic investment. Policymakers in Ottawa and Victoria need to be alert to this risk and stand prepared to take bold action to improve the wobbly investment climate at home.
A second exogenous factor that will shape B.C.’s near-term economic outlook is the federal government’s decision to ratchet back immigration in 2025-26, following three years of record inflows. Ottawa’s about-face on immigration ranks as one of the most dramatic shifts in Canadian public policy in half a century. Under the Trudeau Liberals, Canada has become wholly reliant on immigration-fueled labour force growth to drive the economy. Rising permanent and temporary immigration has indeed boosted the economy, albeit without delivering meaningful gains in per capita incomes, productivity, or living standards. Now, federal policymakers intend to cut permanent immigration targets, impose sharp curbs on international students, and engineer the departure of 1.3 million temporary residents currently living in Canada – all over the next two years. Exactly how – or whether — this will play out in the B.C. context is unclear. After three years of surging population growth, 2025 could see a flat or even slightly declining B.C. population. Lower immigration is necessary after years of untrammeled inflows, but zero or negative population growth will detract from the economy’s capacity to produce goods and services and put a sizable dent in labour supply. The net result will be slower growth in economy-wide spending and production. Economic prognosticators will need to adjust their forecasts accordingly.
Closer to home, the Eby government presides over a structurally weak economy in which much of the growth has been coming from a ballooning public sector while large swathes of the private sector shrink or sit on the sidelines. In common with Canada as a whole, productivity in B.C. is stagnant at best. This unbalanced and unsustainable economic dynamic requires policy attention. Over the last few years, the NDP has prioritized social and environmental goals and done little to bolster the foundations of a productive and competitive economy. Since coming to office in late 2022, the Eby administration has also dug a very large fiscal hole, with the B.C. government now running record budget deficits and building up debt at a stunning pace. The solution to these interrelated problems is to focus on fostering stronger growth in the province’s most productive industries – including natural resources, manufacturing, and advanced technology production — while keeping a lid on taxes, scaling back the extent and cost of government regulation, and carefully managing public sector outlays. Are Premier Eby and his colleagues up to the task? Time will tell.
