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/1512670
23 BC BU S I N E S S .C A J A N U A R Y 2 0 24 i S t o c k / H a m z a Tu r k k o l fter years of dodging the worst that the business cycle had to throw at us, British Columbians are in for a comeuppance in 2024. Inflation and higher borrowing costs—unaccompanied by economic growth and job creation— are going to take a toll on the budgets of households, companies and governments alike, our panel of prognosticators pre- dicts. The housing market will continue its slump. Unemployment will rise (though from a very low base). The wind-down of northern megaprojects will leave an economic hole that no new investment is rushing to fill. So yeah, we have our share of chal- lenges to overcome. But come 2025, and with some grit and smart policy, we'll be in a better place. Here's how some of the province's sharpest economic minds see things playing out. Inflation: the root of all evil The halting descent of Can- ada's Consumer Price Index from its post-pandemic peak of 8.1 percent in mid-2022 has become a tense tennis match for market watch- ers, reassuringly down one month, then alarmingly back up the next. At 3.8 percent, the latest gauge of annualized price increases, from September, is "pretty darn close to the upper end of the Bank of Canada's target range, but it's going to be a bumpy ride from here down to 2 percent," says Ryan Berlin, senior economist and vice-president of Vancouver real estate forecasting group Rennie Intelligence. Domestic demand may cool off—and there are strong signs that is happening—but there are also exogenous factors that contribute to the cost of consumer goods and services, such as oil prices. Central 1 Credit Union pins the provincial inflation rate at year-end at 2.9 percent." Interest rates: peaking, but still damaging "Even if the Bank [of Canada] doesn't raise rates again, higher rates will still have significant implications for the economy," says Berlin. Homeowners who had been paying, in some cases, sub- 2-percent mortgage rates are rolling over into 7 percent. That will take a huge bite out of household budgets. Indeed, the rate shocks will continue for another four years as people on five- year fixed terms renew and an ever-wider slice of the populace feels the pain. "The mortgage interest rates get worse, not bet- ter, from here," agrees Business Council of B.C. chief economist Ken Peacock. Landlords will pass at least some of their higher financing costs on to renters, opting to raise rents even for longtime tenants. People needing a new vehicle will start feeling nostalgic for those days of 0-percent financing. "People are tightening their belts right now. It's happening," Berlin says. He sits on the side of economists who think the Bank of Canada has overshot its mon- etary tightening exercise and will end up reversing course sooner rather than later, perhaps as early as March. The tipping point will come when inflation dips below 3 percent, the upper end of the central bank's target range. After that, he foresees the overnight rate coming down gradu- ally, in quarter-point increments, to 3 percent (from a current 5 percent) by mid- 2025. But others insist the wait for lower rates will be longer. A