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B.C. economy forecast to grow faster than expected this year

B.C. Finance Minister Carole James leaves the legislative assembly after delivering the budget on Sept. 11, 2017.

Chad Hipolito/The Canadian Press

To get a picture of the B.C. economy's resilience this year, take a look at the booming sales of building supplies and garden tools.

From lumber to shovels, retail sales for building materials and garden equipment in the first half of 2017 jumped more than 25 per cent compared to the same period in 2016, according to the budget update the province's new minority NDP government unveiled this week.

The Economic Forecast Council, which advises the B.C. government, predicted in documents that accompany the update that this kind of robust consumer spending will help spur the provincial economy to grow in 2017 at a faster pace than it projected in January.

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The council, made up of representatives from 13 institutions such as chartered banks, envisages B.C.'s gross domestic product expanding by 3 per cent in 2017, up from its previous forecast of 2.3 per cent.

So far this year, key indicators such as retail sales, jobs, housing starts and exports have surpassed expectations, according to the fiscal update.

"The council remained optimistic about B.C.'s economic outlook over the near term, supported by solid growth in employment and retail sales, as well as steady interprovincial in-migration," the documents said.

British Columbia is on track in 2017 to outperform the national economy for the seventh consecutive year, including being No. 1 for provincial growth in 2015 and 2016, RBC Dominion Securities Inc., one of the council's members, said in a research note last week.

RBC predicted in the note that B.C. will have the second-highest provincial growth rate this year, trailing only Alberta.

"This is shaping up to be another solid year for British Columbia's economy," RBC said.

"Wildfires disrupted activity in several areas of the province this summer but, fortunately, the province's major infrastructures so far have been spared."

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Finance Minister Carole James is following the prudent forecasting path of her predecessors, making the government's outlook more conservative than the council's economic modelling.

The Finance Ministry, which consults the council in its budget preparations, is forecasting real growth in GDP of 2.9 per cent this year. That's up from a growth rate of 2.1 per cent the BC Liberal majority government predicted in February's budget.

Based on preliminary numbers for 2016, the Finance Ministry estimates the provincial economy grew by 3.6 per cent last year, compared with the council's 3.7 per cent.

At the time of February's budget, some members of the council cited the potential export of liquefied natural gas as a possible economic contributor in the long term.

But Monday's forecast did not mention diminishing LNG prospects, and some experts raised concerns about whether the NDP will be able to afford all of its big-ticket election promises.

Rating agency DBRS Ltd. cautioned on Tuesday that the NDP government would need to find new revenue streams to finance its ambitious social agenda. "While the NDP's platform committed to maintaining balanced budgets, the government may be challenged to do so, given the extent of its policy commitments," DBRS said.

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Punitive U.S. duties on Canadian softwood lumber shipments south of the border could dampen B.C.'s economy. "Adding to these global challenges is the potential for a further tightening of Canadian monetary policy and rising interest rates," Ms. James said in her budget update speech.

Higher mortgage rates will crimp the housing sector while the stronger loonie could hurt tourism and cut into thriving film and TV production in B.C., industry experts say.

Uncertainty lingers over B.C.'s housing market, which has been a major economic driver over the decades, especially in the Vancouver region in the past 15 years. The budget papers noted that most members of the council "expect a gradual cooling in activity from the elevated levels experienced in recent years, marked by a decline in home sales and a moderation in home price acceleration."

Most of the council's members "expect that stronger commodity prices, a favourable exchange rate and steady U.S. growth will help support B.C. exports despite uncertainty over the potential drag from restrictive U.S. trade policies," the budget update said.

The Finance Ministry expects GDP growth of 2.1 per cent in 2018, compared with the council's forecast of 2.3 per cent.

Jock Finlayson, chief policy officer at the Business Council of British Columbia, said the NDP government will not be able to count on strength in consumer spending for much longer. "Looking ahead, we need to see a pickup in business investment and further gains in exports in order to achieve a healthier and more balanced economic growth profile in B.C.," Mr. Finlayson said in a statement.

B.C. Wildfire Service is conducting a controlled burn near Peachland, B.C., to help prevent the spread of the Finlay Creek wildfire. Fire protection technician Chris Spronken says trees remain 'fairly green' after the controlled fires. The Canadian Press
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