With a mission to inform, empower, celebrate and advocate for British Columbia's current and aspiring business leaders, BCBusiness go behind the headlines and bring readers face to face with the key issues and people driving business in B.C.
Issue link: http://digital.canadawide.com/i/1441359
JANUARY/FEBRUARY 2022 BCBUSINESS 49 FROM TOP: ISTOCK, ROBERT KENNEY 1. The big picture: mixed Several forces are converging to deny B.C. and the rest of the world a smooth COVID recovery. "The econ- omy is improving because the pan- demic is ebbing and the economy is reopening," says David Williams of the BCBC. "But we are running into some headwinds and difficulties with supply chains and global supply." So the outlook for global and Canadian economic growth has been down- graded for 2022, with some of that expansion pushed back to 2023. "At the same time, inflation has ended up being far higher, broader and more sustained than many central banks had projected." 2. An economic rebound hides fundamental flaws As of December, the BCBC forecast the province's real GDP growth at 5 percent for 2021 and 4 percent this year, versus 4.3 percent for Canada as a whole. Still, the economic fundamentals are much softer than those relatively strong numbers suggest, Ken Peacock stresses. "If you look across different industry sectors, for nine of the 16 broad industry categories, employment levels are still below pre-pandemic levels," he says of B.C. "So more than half the industries have not seen jobs recover to where they were, and we're almost two years out now." 3. Inflation: which team are you on? Anyone convinced that the current wave of inflation is a passing phase could be disappointed. After the Bank of Canada upgraded its year-average inflation forecast by a full percentage point, Wil- liams says, the Consumer Price Index (CPI) rose 4.7 percent year- over-year in October. "So these are very difficult times for Team Transitory." With inflation not expected to return to 2-percent levels until 2024, Peacock holds out hope that higher prices will ease somewhat. "But if we see 5-, 5.5-, 6-percent inflation stick around for two or three or four years, purchasing power is going to be severely eroded," he says. "Households will fall behind. And this, I think, is a potential prob- lem for this provincial government, which, from the day it was elected, has been very interested in rais- ing well-being and prosperity for households, per- sonal incomes." 4. Interest rates: nowhere to go but up Uncomfortably high inflation means that businesses should plan for rising interest rates, says Central 1's Bryan Yu. He thinks the market's call for three rate increases this year and two in 2023 is aggressive, though, given that the economy isn't fully healed. "It's heading in the right direction, but whether that warrants three hikes is debatable." In real terms after inflation, Williams notes, Cana- da's policy interest rate is –4.5 percent. "Interest rates affect the economy with a lag of about two quarters to six quarters," he says. "So you've got to ask whether a real policy rate of –4.5 percent is what the economy really needs in six to 18 months. It doesn't look like it needs that kind of stimulus." With real interest rates at an all-time low, the Bank of Canada has promised not to change the policy rate until the second half of 2022. "With inflation now at 4.7 percent, it's very difficult to believe that the central bank will leave interest rates on hold for that period of time," says Williams, who points out that the BoC recently hinted at a second- or third-quarter hike. "But that still seems an awfully long time to leave interest rates, in real terms, being very significantly negative." If real rates quickly move closer to zero, "that would be a very contractionary effect on the economy, and I don't think the economy is all that strong and robust." 5. Can fintech help save small business? The pandemic hasn't been kind to smaller companies in need of financing. "Access to capital when you're Jimmy Pattison is very different than if you're some 2022 B U S I N E S S and E C O N O M I C "[The economy] is heading in the right direction, but whether that warrants three [rate] hikes is debatable" –BRYAN YU, Central 1 Credit Union