Monday, December 15, 2008

Revised BC Forecast

I've been thinking a lot about how BC may be impacted by a Canadian recession and how that impacts my forecast. Here are the relevant facts:

1) Canada is almost certainly going to be in a recession to start 2009. If standard models for the transmission of US shocks to the Canadian economy hold, a 4%-6% decline in US growth could translate to 1.2%-1.8% decline in Canada - on top of softening domestic demand. These shocks should hit BC through inter-provincial and US export channels.

2) According to BC Stats, inter-provincial exports account for about 16% of BC GDP, with most of the trade occurring with Ontario and Alberta. In the 1990 recession, BC exports declined about 2% and in the 1982 recession exports declined close to 11%.

3) International exports account for 28% of BC GDP. In the last US recession, these exports fell 5%. Moreover, key BC export sectors - mining and forestry - are in serious trouble.

This all sounds really awful - perhaps too awful to produce 1.3-1.4% growth. Taking the above into consideration, my revised forecast says that without VANOC stimulus, the BC economy would likely slip into a recession, posting growth of -0.2%. With VANOC spending, and its indirect effects, growth should be bumped up by 0.4%-0.5%.

Therefore, the revised forecast is 0.2-0.3% - 2010 saves the day! (just kidding, no hate mail please).

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