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’!
-Noel Muller
noelmuller.com 
Well said Noel, time to start gardens in our front lawns and spend less and fix more. Time to check ourselves on where we all stand in what we owe. Baby steps but done now will help to glide through this.
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I like that you address jobs and the growing need to come together as community. And working together with a focus on defined specifics! Progress, forward movement..and investing in our coast!
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Sensible – but you could add that its a buyers market and the likely buyers are those that are already wealthy and they will benefit the most when things improve… and likely cause a widening of the gap between the haves and have-nots. All the not-so-wealthy will simply be doing the austerity bit. You could also reinforce the need for living wages on the coast and you could talk about what you think the Coast will be like if we stop trying to help the economy.
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Hello CodeByDesign,
great points, and I have addressed some of those (only glancing)
in previous articles.
in every economic analysis there is an aspect of ‘allocation’
(that the entire discipline likes to forget about),
we’ve got some very serious questions to be asking ourselves
about where we’re headed from 2014 to beyond.
We must remember that although a brutal correction happened in the US,
setting the stage for their recovery in many ways, nothing similar
happened in Canada.
The underlying problems here remain or have been exacerbated.
It’s a very good thing we have such massive reserves of natural capital,
and the stringent economic oversight of a G8 government to get us through
and trouble ahead.
I still think we’re going to need better political leaders for the best outcome
to be realized.
I’m going to have to think some more about that,
thanks for the reply,
Noel
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Noel – you referenced this at the all candidates forum and I hope everybody there went home to read it as I did. You provide a solid critical review of the ‘official’ message of mainstream economists. As you point out, it is not ‘all going to be okay’ if we are patient and simply wait for the global economy to make things better. And, what is the global economy but an aggregation of many, many local economies all apparently waiting for global capital to touch down in our hungry hands.
One small issue and one question. The issue is your acceptance of the ‘dependency’ rate as a valid indicator. As you know from my comments at the Mayor’s Forum I think the dependency rate is a relic of the old economy and does not reflect current realities of demographic links to the economy. As a cohort, senior citizens are wealth generators who are providing financial transfers to younger generations.
The question: what do you mean or envision when you reference ‘closer coordination between business and government’ ?
Thanks for this thoughtful piece.
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Hello Bruce,
thanks for the comments and question,
the comment first:
I understand that the issue of ‘dependency ratio’ is a red herring,
but it points to a real issue which is that of consumer rate.
Young families and people age 18-55 are the consumer population
(in the age of family formation), and the drivers of our local retail market.
It’s this reason why we need young people in our communities first and
foremost: without young people, small businesses will certainly suffer.
Related to your question:
Cooperation between business and government needs to happen under
the auspices of a partnership agreement: this is a stated requirement under our
Community Charter.
I feel one of our greatest opportunities is a collaborative trades apprenticeship program in partnership with businesses in the District.
I would happily take a hand at drafting such an agreement, as well as, building support for it in the business community.
The facts remain: trades related work is still the clearest path to middle class for young people, especially locally.
I think we all benefit when we clearly outline the involvement of business and government in a partnership agreement.
many thanks for the response,
Noel
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Thanks for the clarification. Shifting from ‘dependency’ to ‘consumer rate’ is quite insightful and points directly to the real issue. (Another day we will discuss the merits of a consumer driven economy and whether we are still in one.)
I also appreciate better what you meant by government/business collaboration. Your example of a trades and apprenticeship program is something I could fully support. We also have to think beyond the ‘traditional’ trades. Training for the new economy is almost non-existent on the Coast.
After the election you could be very busy building cooperative agreements between business, government and post-secondary institutions!
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Do you think we can get a link to BCIT on the coast? Those who can afford to leave the coast to study for diplomas and licences have typically stayed on the mainland. Either a campus or video outreach to chosen learning streams would be a positive resource for our graduating students. The hospital needs and will always need capable Nurses, Teachers, legal assistants, realtors, technicians for the upcoming growth of green and clean energy resources, and if useful education resources are accessible, soon businesses that would hire those graduates would set up shop here!
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This is great dialogue ~ discourse! Keep it up. Thought full 🙂
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You are heading down the right path. The old economy is going to if not already going to crash. We cannot continue to think that constant growth based on what we use to do to stimulate economic security. I think we need to create a more co-operative based structure were we are more supportive of each other as a community in our community. I view you as a fresh voice long awaited for to be engaged in our & your generations survival. I’m 78 years of age and tell all I speak with Noel needs your support for our very survival.
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Every level of government in the world is buried in managing responsibilities, mired in problem-solving and ovrrwhelmed by information, new science, and mind-numbing technological change.
What we all need is visionary leadership and a positive, challenging vision of a better world we can ALL get behind and work toward. It must have enough perspective to encompass the present challenges, enough detail that people can grasp and take steps make their chosen part real (to get from here to there), and enough clarity to avoid getting lost in the details on the way to the goal.
Communication and dialogue are the way to build and articulate a new, all-encompassing vision for humanity. This blog is a step in the right direction, Thank you.
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Thank you for this realistic perspective on our SCoast status. The much overused term of ‘cautiously optimistic’ with an agenda of selling investments is far from the real points that are listed. Austerity needs to be said loud and clear and repeated again and again. Living beyond our budgets has become almost an addiction ~ the ‘more and more stuff’ mentality. Thank you for continuing to relay this vital information, Noel! I also like your point about the need for all our various governments to work together; define a common goal and communicate in a ‘moving forward’ manner. There is no room for petty bickering. Look forward to seeing this in action. Keep up the good work.
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