Recently, we had the great opportunity to listen to a distinguished economist, Helmut Pastrick, tell us about his economic forecast for the Sunshine Coast (linked here). Pastrick is a serious economic heavyweight: he leads the analysis team for Credit Unions across BC and Ontario (no small matter). He is also a former employee of CMHC, a current member of BC’s Economic Forecast Council, and a sought-after expert in the analysis of housing markets in BC and Ontario.
I felt compelled to issue my take on Pastrick’s economic outlook for the Sunshine Coast. He presented his views as being ‘cautiously optimistic’ as we head towards a sustained recovery in 2016.
Investment economists, employed by banking entities, are often ‘cautiously optimistic’, after all their fiduciary obligation is to sell investments. In contrast, a development economist, in charge of Government policy and budget oversight, needs to be far more realistic, and less prone to undeserved optimism.
For me, many clear downsides exist in the picture Pastrick presented. Below, I discuss why I feel the numbers are worse than some believe, and what that means for Sunshine Coast residents, and our local governments.
Pastrick’s Model of Recovery
Pastrick is an admitted optimist and that is clearly presented in the slides; on nearly every key recovery determinant, he projects slightly higher than consensus.
For those of you unfamiliar with the inner workings of economic forecasting, a forecast is an economist’s ‘best guess’ about what will happen, and can often be wildly wrong. Take for example that economic consensus missed forecasting the 2009 financial crisis, and thus were wildly off the mark as a group.
The model that Pastrick presents is quite orthodox, and is agreed upon in economic consensus. A global recovery, if underway, will pull all economies upwards, and some above ‘zero-growth’, thus ending recession. The world’s largest economies lead the way in any recovery, these being: USA, China, Japan, and the European Union.
In these terms, it can be explained that Canada will resume growth and be able to raise interest rates, but only if the global economy leads the way. The BC economy is thus hinged on what happens across Canada, and the SCRD upon what happens in BC. It’s a familiar picture.
There are, however, two plausible outcomes for growth in G8 countries after a housing crisis. One is a pattern of renewed growth, spurred on by measures such as stimulus spending, interest rate declines, and improvement of exports. The other is a pattern of repeating recessions, continued export weakness, and stagnant growth in the midst of inflation (stagflation). This is the pattern exemplified by Japan after their housing crash in the early 90’s, where a ‘real growth’ pattern has not since returned to Japan.
Global recovery, in real terms, has not happened since 2009. Even propped up by the lowest interest rates the world has ever known, the G8 countries have not responded with real growth patterns, based on rising exports. If you were to push interest rates back up to levels seen in 1999, the current ‘marginal recovery’ would flounder nearly immediately. The pattern exemplified by Japan after their housing crash could potentially be realized in G8 countries, and persist unless some change occurs.
My take on the numbers
Slide by slide, Pastrick presented a very difficult pattern emerging for the Sunshine Coast.
Let’s take the following 8 local measures, listed in his slides, as exemplary:
- Housing starts are at their lowest in 2 decades (page 62)
- 4 years running of population declines in SCRD (page 39)
- Dependency ratio projected to reach 80% within 10 years (page 6)
- Large outflow migration of people aged 15-34 (page 41)
- Less people now working within the SCRD, GVRD workplaces are growing in weight (page 46)
- Declining employment in resources, manufacturing and construction (page 49)
- Shift towards service sector (decidedly low-wage) in employment (page 48)
- Lowest housing sales seen since the mid 1980’s (page 56)
Taken together, these numbers present a picture that I would not assume is ‘cautiously optimistic’.
Marry these numbers with the qualitative responses contained in the 2014 Vital Signs survey, where 75% of respondents indicated the state of the local economy was of concern and in need of attention.
It shows a story of very real weakness, decline and atrophy in the key areas of population growth, job creation and housing investment.
According to Pastrick, we need to see growth elsewhere, in the US and across Canada, before we’ll see any positive response in our local numbers.
In question period, I asked a pointed question, that I felt gets to the heart of the issue: “Since we’re waiting for exports to lead growth, this points to ‘current accounts’ deficit as the key determinant for recovery. What plausible mechanism do we have in BC to improve this?”
In response, Pastrick shrugged his shoulders “we haven’t been able to get a handle on that for 17 years, and it’s a serious problem” and wondered aloud “perhaps LNG?” (He’d already mused about the probability that BC LNG would struggle previously in his presentation).
I took it to mean that there continues to be no plan, at the very highest levels of economic thought, to improve our export base (beyond raw energy extraction).
This does not make me even cautiously optimistic that we’re headed for a sustained recovery.
What can our local government do?
For starters, all levels of government need to help ‘drive the bus’ towards better economic outcomes for everyone. The picture painted by Pastrick is not one in which individuals will be able to have influence on their own; it’s not even a picture where individual governments have enough influence on their own. We need governments, business, community groups and individuals to come together and focus on workable solutions for everyone.
We’re going to need a stronger community than we have now. Local government can be a part of creating that: but in order to have a strong community, you need people that want strong community.
We need to recognize that we are in a period of austerity, and act accordingly. We need to trim our personal spending, pay down debt, introduce cost saving mechanisms to government, and invest in education.
We need to prepare for future growth, but have systems in place that address the potential for downside: in this way we improve our resilience.
We need to open up the coordination of business and government, and support each other, with the primary focus being on employing local residents.
We need to focus on export growth, and the improvement of our trade balance. Value added exports are of primary importance, and must be encouraged by all levels of government.
If we can do all that, I’ll certainly begin to be ‘cautiously optimistic’!