BC Check-Up: Invest report highlights the challenges of fostering strong business investment in a slowing BC economy
BC’s investment climate underwent considerable change in 2023, highlighting the complexity of the economic environment. Specifically, higher interest rates and persistent inflation continued to put downward pressure on the economy, while population growth and global pressures challenged affordability.
This volatility was evident in the housing market, for example, where we saw declines in sales, average home prices, and detached housing starts, combined with record-high starts for attached units. On the non-residential side, total building investment grew in 2023, despite a decline in spending on industrial projects.
Looking ahead, the forecast for BC’s economic output in 2024 is bleak, with analysts expecting real GDP per capita to contract over the year, before stabilizing in 2025. On the whole, weak labour productivity continues to plague the BC economy, making policies that boost investment a priority.
Inflation remained above Bank of Canada target
To put 2023’s numbers in context, we need to look back to BC’s economic recovery in 2022, following the easing of pandemic restrictions. Amid this recovery, inflation reached its highest rate in nearly four decades, leading the Bank of Canada (BoC) to increase the policy interest rate from 0.25% to 4.25% over the course of 2022. By December of that year, BC’s annual consumer price index (CPI) growth was 6.6% year-over-year—slightly down from peak levels but still well above the BoC’s 1%-3% target range.
Fast forward to 2023, when the BoC implemented three additional rate hikes, culminating in a policy rate of 5.00% in July—a rate that was maintained through the BoC’s latest decision on January 24, 2024 (see Figure 1).
According to the latest data from December 2023, BC’s inflation rate was 3.4%, matching the national rate; however, the concurrent rise in shelter and food costs—which reached 6.4% and 5.4%, respectively, in December—significantly outpaced the overall inflation rate. Notably, inflation for rented accommodation (+8.5%) exceeded that for owned accommodation (+6.7%), despite higher mortgage interest rates.
Figure 1: BC CPI Annual Growth and Policy Interest Rate
Source: Statistics Canada, Table 18-10-004-01 and Bank of Canada.
Interest rates expected to decline in 2024
While 2023 was largely characterized by softer economic data,1 and the contractionary effect of higher interest rates continued to take hold, factors such as robust wage growth, a significant population increase, and various global pressures made it more challenging to curb inflation. Nevertheless, the key question dominating economic discussions in early 2024 is: “When will the BoC lower interest rates?”
BoC Governor Tiff Macklem has played a pivotal role in setting expectations for monetary policy. In the BoC’s January announcement, Macklem highlighted a shift in the Governing Council’s focus—from determining the height of interest rates to considering their duration at elevated levels—and noted that further rate hikes were unlikely.2 This messaging was echoed by independent forecasters, who anticipate rate cuts by the middle of 2024.3
Home sales slowed in 2023, but prices showed resilience
Higher interest rates continued to dampen the BC housing market in 2023, as both sales volume and average home prices declined. Residential sales fell by 9.2% compared to 2022. At the same time, the average residential sale price decreased by just 2.6% from the previous year, showing some resilience in the face of economic headwinds.4
Residential sales are likely to rebound in 2024, given the expected cuts to interest rates. Prices, however, are expected to show little change during the year.
Trends for housing starts diverged in attached and detached markets
BC achieved a record-high number of housing starts in 2023. This surge was predominantly fuelled by a remarkable upswing in higher-density units, particularly apartments, which drove attached housing starts up by 20.3% compared to 2022, to just under 41,000 units (see Figure 2). In contrast, the detached housing market experienced a significant downturn, recording only 7,009 starts—a 23.1% drop from the number recorded in 2022.
This distinct split in the housing market underscores the complex nature of housing development in the present economic landscape. Factors such as elevated population growth and deteriorating affordability played pivotal roles in driving the demand for high-density living. Meanwhile, the decline in detached housing starts reflects caution among British Columbians grappling with high interest rates and sustained inflation.
A recent TD Economics report forecast that housing construction will falter slightly in 2024, with the number of housing starts expected to drop by nearly 10% from record highs.5
Figure 2: Housing Units Started in BC, 2019-2023
Source: Statistics Canada, Table 34-10-0143-01 and Canada Mortgage and Housing Corporation, Housing Starts, Completions and Units under Construction. Captures aggregate housing starts for all municipalities with at least 10,000 people.
Non-residential investment rose due to strong growth in institutional and government sectors
From January to November 2023, total non-residential building investment in BC reached $7.18 billion, reflecting a 6.6% increase from the same period in 2022 (see Table 1). In particular, institutional and government investment achieved a record high of nearly $2.1 billion. This spike was largely driven by increased spending on health and medical facilities, including a new hospital in Dawson Creek that began construction during the second half of 2023.6
Notably, however, industrial investment—which includes factories as well as buildings related to transportation and utilities, mining, and agriculture—fell for the fifth consecutive year in 2023, totalling just under $700 million.
Table 1: Non-Residential Building Investment in BC
|
|
2023-YTD* |
1-year change (2022) |
2 year-change (2021) |
5 year-change (2018) |
| Total
|
7,179,939,319 |
6.6% |
8.7% |
18.8% |
| Industrial
|
696,557,603 |
-8.6% |
-12.2% |
-28.1% |
|
Commercial |
4,404,323,030 |
6.1% |
12.8% |
23.1% |
|
Institutional and government |
2,079,058,687 |
14.2% |
9.0% |
39.0% |
Source: Statistics Canada, Table 34-10-0286-01, expressed in 2017 constant dollars, not seasonally adjusted.
*January to November 2023; compared to the same period in prior years. 2023-YTD values do not sum to the total due to rounding.
Moreover, the value of building permits issued—a leading indicator for future building investment—has been on a downward trend in BC from its post-pandemic peak in February 2022 (see Figure 3). The total value of non-residential building permits issued in November 2023 was $416 million, marking a modest increase of 6.7% from November 2022. Over the same period, the value of residential building permits fell by 31.9%, down to $654 million.
Figure 3: Value of Building Permits in BC
Source: Statistics Canada, Table 34-10-0285-01, expressed in 2017 constant dollars, seasonally adjusted.
BC economy expected to slow through 2024
In 2022, BC recorded robust growth in real GDP of 3.8%, matching the national average. However, as shown in Figure 4, real GDP growth is expected to falter overall in 2023,7 dropping to a meager 0.7% on a real basis as the effects of high interest rates and persistent inflation trickle their way through the economy.
BC’s economic performance is expected to slow even further with flat or negative growth forecasted for early 2024. Moreover, full-year forecasts of just 0.5% growth in real GDP put BC near the bottom of the list for provincial economic performance in 2024, and a return to 2.1% growth isn’t expected until 2025.8
Figure 4: Real GDP per Capita in BC
Source: Statistics Canada, Table 36-10-0222-01. Population data is from BC Stats Population Projections. The 2023-2025 GDP growth rates are based on an average forecast of four of Canada’s five major banks (BMO, RBC, Scotiabank, and TD). Forecasts were made between December 2023 and January 2024.
Declining prosperity anticipated in 2024
One factor that bolstered Canada’s GDP numbers in 2023 was immigration, which reached record levels. However, in the short term, falling labour productivity combined with elevated population growth is a recipe for a drop in living standards. For this reason, Canada’s real GDP per capita—the accepted measure for standard of living—has fallen in four of the last five quarters, and it’s expected that we’ll see a similar trend in BC.
Real GDP per capita in BC was expected to fall by 2.4% in 20239 and is expected to fall by 2.3% in 2024 before stabilizing in 2025 (see Figure 4). This anticipated downturn underscores the need for strategic economic policies and initiatives. As 2024 unfolds, the focus should be on addressing the economic challenges to prosperity in the province. This is particularly important as more newcomers will look to participate in the provincial economy in the coming years.
Weak labour productivity and low capital investment remained major challenges
Previous CPABC publications10 have highlighted Canada’s disadvantage when it comes to labour productivity and capital investment. In terms of forecasted growth for real GDP per capita, Canada ranked last among the Organisation for Economic Co-operation and Development (OECD) countries for the 2020-2030 period.11 A key reason for this poor ranking is Canada’s ongoing problem of lacklustre labour productivity, which correlates to low levels of capital investment per worker.
A more recent report by the C.D. Howe Institute projected that in 2023, Canadian workers would likely receive about 65 cents of new capital for every dollar received by their counterparts in the OECD. Compared to the US alone, this figure dropped to an even more concerning 58 cents, highlighting the disparity in capital investment between the two countries.12
Understandably, respondents to the most recent CPABC BC Check-Up: Invest survey expressed concern about this issue. Those in management identified high interest rates, increasing labour costs, and a shortage of qualified labour as the primary factors adversely affecting their organizations’ planned investment expenditures (see Figure 5). High taxes and government policies rounded out the top five factors affecting business investment (see below for more survey highlights).
Figure 5: CPABC BC Check-Up: Invest Survey: Factors Identified as Adversely Affecting Planned Business Investment in BC
Source: CPABC, BC Check-Up: Invest survey, December 2023, n=357 (only senior CPAs were asked about their organization’s planned investment expenditure; among them, those in public practice were asked about the investment expenditure of their clients).
What’s needed
Looking ahead, addressing these key issues will be vital for both Canada’s economic health and that of our province. Strategic initiatives to enhance labour productivity coupled with a focus on increasing capital investment will be essential if we want businesses to scale up and contribute to a more prosperous British Columbia.
Highlights from CPABC's BC Check-Up: Invest Survey
CPABC’s BC Check-Up survey is conducted three times a year to measure members’ perceptions of BC as a place in which to work, invest, and live. More than 600 CPABC members responded to the most recent survey, BC Check-Up: Invest, which was conducted in December 2023. We asked them for their thoughts on the economy and the investment climate, and here’s what they told us:
On BC's Economic Outlook
- 24% of respondents rated BC’s economic performance as “good” or “excellent” in December 2023, a decrease of 5% compared to the results of the BC Check-Up: Work survey conducted in August 2023. The percentage of those who rated it as “poor” was 29%, up from 21% in August.
- 38% said they anticipate a decline in regional capital investment in 2024, while only 23% said they expect to see an increase. The balance (40%) said they expect it to remain the same.
- The top three challenges identified for BC businesses were housing prices (87%), the ability to attract and retain labour (80%), and labour compensation (79%). These results were similar to the August 2023 Work survey.
On their organization's outlook
- 50% of respondents said they are confident in their organization’s prospects for 2024. Conversely, 18% expressed a lack of confidence for the year ahead, a figure that has been slowly trending upward since December 2022.
- At the same time, however, 38% of respondents said their confidence in their organization’s prospects had fallen over the past year, while only 19% reported increased confidence.
- 77% of senior CPAs expect their organization’s operating expenses to increase in 2024, and 72% of them plan to raise prices in 2024 to offset these increases.
- 34% of senior CPAs expect profitability to decline in 2024, compared to 28% who expect profitability to increase.
- 33% of senior CPAs plan to expand their workforce in 2024. Only 13% expect to reduce their workforce.
Survey Demographics
Who are they?
606 CPABC members
Where are they from?
Mainland/Southwest BC: 62%
Vancouver Island/Coast: 18%
Thompson-Okanagan: 9%
Rest of BC: 10%
Outside BC: 1%
CPABC commissioned Leger Marketing to conduct a web-based survey of CPA members about their impressions of the economy and their region. A total of 606 surveys were completed between November 21, 2023, and December 20, 2023, representing an overall response rate of 9%.
Note: All “don’t know” and “no opinion” responses have been excluded from this infographic. As a result, there may be small discrepancies when comparing this infographic to those published in previous years. Some percentages may not sum to 100 due to rounding.
Jack Blackwell is CPABC’s economist.
The article and infographic were originally published in the March/April 2024 issue of CPABC in Focus.
Footnotes
1 Bank of Canada, “Bank of Canada Maintains Policy Rate, Continues Quantitative Tightening,” news release, January 24, 2024.
2 Tiff Macklem, “Monetary Policy Report Press Conference Opening Statement,” , January 24, 2024.
3 According to forecasts made by Canada’s five major banks (BMO, CIBC, RBC, Scotiabank, and TD) between December 2023 and January 2024, the first rate cut is expected to come before the end of Q2 2024.
4 Brendon Ogmundson, “The 2023 Housing Market Was Defined by High Rates and Slow Sales,” January 15, 2024.
5 Beata Caranci, Derek Burleton, Rishi Sondhi, and Marc Ercolao, “Provincial Economic Forecast: Interest Rates Are Biting but Provinces Are Fighting,” December 19, 2023.
6 Statistics Canada, “Building Permits, June 2023,” The Daily, August 9, 2023.
7 At the time of this writing in February 2024, full-year data for 2023 was not yet available.
8 Forecasts were based on the average from four of Canada’s five major banks (BMO, RBC, Scotiabank, and TD) and were made between December 2023 and January 2024.
9 See footnote 7.
10 Aaron Aerts, “Investing in BC,” CPABC in Focus, March/April 2023 (14-22).
11 OECD, “Economic Outlook No 114 – December 2023 – Long-Term Baseline Projections,” (dataset), accessed February 5, 2024.
12 William B.P. Robson and Mawakina Bafale, Working Harder for Less: More People but Less Capital Is No Recipe for Prosperity, November 7, 2023.
