BC Output Gap and the 2010 Games

With the 2010 Winter Games just under a year away, and given that BC is currently experiencing a sharp slowdown if not an outright recession, I though it might be interesting to see how the 2010 Games might help to speed up a recovery. To illustrate, the figure below shows the BC output gap (actual GDP as a percent of potential GDP) with and without the 2010 games.
This assumes that the 2010 games add about 1% to BC real GDP in 2010 and that growth returns to a trend rate of 2.7% in 2011. Now, I know there are those that are not in favour of the Games but I don't think you could ask for a better stimulus plan - it is temporary, targeted, and the timing could not be better. Even more, the stimulus is a mix of of government and private spending and is spread across diverse sectors of the economy.

Whether the Games will have long-lasting impacts beyond 2010, or even if the money could have been spent better elsewhere are open questions, but as stimulus, it is hard to argue against.

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).

This is totally going on my blog...

First a note about this blog: As the subtitle implies, I've started this blog in the hope that it will act as a device to flesh out and organize my own ideas about economics and to aid in learning some new tricks. Doing so with an audience, even if that audience is limited to my wife and bored friends and family, will help provide some discipline. Second, there is a paucity of quality Canadian economics blogs. One is the excellent Worthwhile Canadian Initiative, I can't think of any others. My hope is to approach their level of quality, but I expect to fall woefully short.

What you can expect to find here - macroeconomic analysis of the Canadian and US economies. I'm hoping to start a forecast log to keep track of my own predictions, but that project is still under development. My interests are mainly monetary policy, exchange rates and financial markets, and so that is likely what i'll be posting about.

Lastly, I realize the best blogs are ones that have frequent new material and so I'll do my best to post as often as possible.

On with the show!