CPABC’s latest report examines BC’s economic environment amid international trade uncertainty
2024 was a transitional year for BC’s investment climate. The Bank of Canada (BoC) maintained a 5.00% policy interest rate through the first five months of the year, before making a 25-point cut in June—the first reduction since the onset of the COVID-19 pandemic. This decision signalled the beginning of a long-awaited easing cycle.
Still, the latter half of the year saw softer economic data and an underperforming labour market. Between April and December, the BC economy lost 16,000 workers, despite adding 100,300 people to the working-age population. Additionally, the unemployment rate rose from 5.0% to 5.9% over the same period. However, further cuts to the policy rate, combined with greater price stability, gave hope that the worst was over heading into 2025.
That optimism was short-lived, however, as debates over interest rates and labour market weakness gave way to growing political turmoil. Following his election as the 47th president of the United States, Donald Trump threatened to impose tariffs on all Canadian (and Mexican) goods crossing the US border unless certain policy objectives were met.1 On February 1, 2025, Trump made good on this threat, imposing 10% tariffs on Canadian energy products and 25% tariffs on all other goods; after the Canadian government promised to retaliate with tariffs of its own, the two sides reached an agreement that delayed any trade action for 30 days.
Tariffs could have detrimental effects on the BC economy
It’s almost inconceivable that Canada is on the verge of an all-out trade war with its neighbour and closest economic partner, but here we are. While the timing of potential US tariffs is not known at the time of this writing in early February (and seems impossible to predict), the potential impact could be devastating for both the Canadian and BC economies.
As of November 2024, nearly $26.4 billion of BC goods had been exported to the US, accounting for 53% of year-to-date merchandise exports (see Table 1). While this compares favourably to the Canadian average of 76%, the US is still the province’s primary export market, especially for natural resource merchandise such as processed lumber and agricultural products.
According to the BC government’s preliminary assessment on the potential impact of the president’s proposed trade policy,2 a 25% tariff with retaliation from Canada could see the BC economy contract in real GDP terms for two consecutive years. In the worst-case scenario, we would also see the unemployment rate rise to 6.7% in 2025 and 7.1% in 2026.
Furthermore, it’s reasonable to expect longer-term challenges for the Canada/US relationship. Diplomacy will have the largest role to play (whether co-operative or confrontational) as the situation unfolds, and supporting heavily impacted sectors, removing interprovincial trade barriers, and promoting stronger labour productivity will surely be key objectives for the Canadian and BC governments.
What about the Canadian dollar?
At the time of this writing, the Canadian dollar was trading at a little over $1.43 per US dollar. The strength of the loonie has depreciated by 7.17% against the US dollar since January 2024 (see Figure 1) due to a myriad of factors, including diverging economic trends and central bank policies, as well as the new US administration’s trade policies.
The implementation of tariffs on either side of the border will put more downward pressure on the loonie. As a case in point, during the brief period on February 3 when tariffs were expected imminently, the Canadian dollar traded as low as $1.48 per US dollar before closing at $1.46. The silver lining here is that a weaker Canadian dollar would help limit the impact of tariffs on Canadian exporters, effectively cancelling out a portion of the levy; however, further devaluation would make foreign goods more expensive for Canadians.
The fight against inflation is over… for now
With the Canadian/US trade relationship coming under strain, it’s important to examine BC’s economic health heading into this period of political uncertainty. The investment climate in BC became less restrictive in 2024 as the BoC started its much-anticipated easing cycle. After making an initial cut of 25 basis points in June 2024, the BoC further reduced the policy rate by two consecutive cuts of 25 basis points in July and September, and two large consecutive cuts of 50 basis points in October and December. The end result was a policy rate of 3.25% by year’s end.
As of December 2024, headline inflation in BC was 2.6%, higher than the national average of 1.8%. Shelter costs, which increased by 4.8% between December 2023 and December 2024, were the biggest driver of recent inflation in BC (see Figure 2). Costs associated with owning a home rose by 4.2%, while the price of rented accommodation increased by 6.6%.
Excluding shelter, price growth across all other goods was moderate in 2024, rising by only 1.5% over the course of the year.3
At its first meeting of the new year on January 29, 2025, the BoC further lowered the policy interest rate to 3.00%, citing stable inflation (~2%) and soft business investment and labour market conditions.4
BC housing starts retreat from an all-time high
Despite higher borrowing costs, housing starts in British Columbia peaked in 2023, driven by strong demand and poor affordability, which spurred record development in high-density living arrangements like apartments and condos.
In 2024, there were 45,828 housing starts provincewide, marking a 9.2% decrease from 2023. The decline was spread across all housing types, with activity in lower density units falling the most: Single-detached starts fell by 20.3% to 5,550, the lowest number ever recorded (see Figure 3); semi-detached/row housing starts declined by 14.1% to 4,541; and apartment/condo starts fell by 6.5% to 35,737.
More than three-quarters (78.0%) of housing starts in 2024 were apartment or condo units, up from 52.0% in 2015. And given the province’s desperate need for more affordable housing, combined with residential land scarcity in urban centres, high-density projects like apartments and condos will no doubt continue to dominate the residential construction market.
Non-residential building investment rises
Between January and November 2024, total non-residential building investment in British Columbia reached $7.62 billion, a 4.5% increase compared to the same period in 2023 (see Table 2). Moreover, institutional and governmental investment increased for a second consecutive year to over $2.55 billion (see Table 2), driven by a record capital spending package presented by the BC government in its 2024/2025 budget.
Industrial investment—which includes factories as well as buildings related to transportation and utilities, mining, and agriculture—rebounded in 2024 after declining in each of the previous five years. Still, industrial expenditure remained below 2019 levels, as did commercial investment.
Major project investment softens as “mega projects” wind down
A significant factor that has helped BC outpace the rest of the country in economic growth over the past decade has been the construction of mega projects, particularly in BC’s resource sector. Now, many of those projects are coming to an end, seemingly all at once.
The largest project in BC’s Major Project Inventory (MPI) is the LNG Canada facility in Kitimat, which was 95% complete as of September 2024 and now on track to start exporting liquified natural gas by mid-2025.5 The Coastal GasLink pipeline, which recently began supplying the Kitimat facility, was completed in December 2023. The combined price tag for both projects totalled $42.2 billion.
Meanwhile, BC Hydro’s Site C Dam, which will have final costs of around $16.0 billion, filled its reservoir and started supplying power through the first of its six generators in November 2024. BC Hydro expects the project to be fully operational by fall 2025, with construction wrapping up by the end of the year.
Even the delayed Trans Mountain Pipeline, with its final cost expected to exceed $34.0 billion,6 became operational in mid-2024, and it’s expected to come off the books when Q2 2024 data is released.
The completion of these projects will have positive impacts on BC’s economy, either as revenue generators or by supplying cheap electricity to British Columbians; however, there is no way to easily replace the sheer magnitude of investment these projects represent. As of Q1 2024, these three projects (excluding the Coastal GasLink pipeline, which was completed in 2023) represented 22.5% of BC’s $367.8-billion MPI and nearly half the value of projects currently under construction.
Rebound in economic prosperity now uncertain
British Columbia recorded better than expected growth in 2023, as real GDP increased by 2.4%, which was the highest among the provinces.7 However, for the year that just ended, economic growth is expected to slow to 1.1%, among the lowest in Canada.8 Analysts expected growth to come back up to 1.9% in 2025, with lower interest rates leading to a renewal of activity in the BC housing market, but the potential trade war has dramatically altered expectations.
Population growth, rather than labour productivity, has been the main driver of economic growth over the last two years. The surge of newcomers to British Columbia helped buoy the economy through a slow growth period, albeit at the expense of output per person. After peaking at $60,744 in 2022, real GDP per capita fell in 2023 and is expected to fall lower in 2024. Improved economic conditions and revisions to the federal government’s immigration targets were expected to allow real GDP per capita to rise above 2022 levels by 2026, but, again, the potential of a trade war has changed this prognosis.
Final thoughts
Canada/US trade relations pose the biggest risk to the BC economy in 2025. Were it not for the tariff threat, there would be cause for cautious optimism, as stable inflation and lower interest rates are expected to lead to a rebound in the housing market, boosting economic growth. And while the completion of natural resource and energy mega projects will end a decade of strong capital investment across the province, it will also pave the way for those projects to bear fruit.
Perhaps now more than ever, it is imperative that the province prioritizes policies that encourage investment and economic diversification. Improving real incomes and increasing labour productivity remain key strategies to improving the well-being of British Columbians. At the same time, we’ll need to reduce barriers to interprovincial trade and foster new and existing trade relationships to limit the fallout from trade disruptions with the United States.
Jack Blackwell is CPABC’s economist.
This article was originally published in the January/February 2025 issue of CPABC in Focus.
Footnotes
1 The tariff threat initially aimed to prompt action from Canada and Mexico on border security. Trump has also cited US trade deficits, military spending, and the need to renegotiate the United States-Mexico-Canada Agreement as motivations.
2 Government of British Columbia, “B.C. Provides Economic Assessment of Trump’s Tariff Threat,” information bulletin, news.gov.bc.ca, January 16, 2025.
3 Suspension of GST/HST tax brought prices down on some goods in December 2024. Prices of affected goods will show an increase once the tax holiday ends.
4 Bank of Canada, “Bank of Canada Reduces Policy Rate by 25 Basis Points to 3%, Announces End of Quantitative Tightening,” news release, bankofcanada.ca, January 29, 2025.
5 LNG Canada, “LNG Canada 2024 Fall Update,” news release, lngcanada.ca, September 12, 2024.
6 According to Mark Maki, CEO of Trans Mountain Corporation, speaking to the House of Commons Standing Committee on Natural Resources, Meeting No. 110, October 21, 2024. The project was valued at $30.9 billion in Q1 2024 MPI data.
7 Statistics Canada, “Gross domestic product in 2023,” The Daily, November 7, 2024.
8 Forecasts based on the average from four of Canada’s major banks (BMO, RBC, Scotiabank, and TD). Forecasts were made between December 2024 and January 2025.
