Feb 22, 2010

Is it time to stop worrying about the economy?


If you read the papers in this province, you’d think BC had long forgotten about the recession. Every bit of economic good news is trumpeted enthusiastically, from small increases in employment to the latest growth forecast released by private sector economists.

Yet economic forecasting is a notoriously difficult business. Just a year ago, we saw BC’s economic growth forecasts revised downwards after nearly every Statistics Canada news release, as the real economy indicators – unemployment rate, retail spending, housing starts – posted disappointing results monthly. You’d think that the recent economic volatility would make us more cautious as we read about the latest forecast issued by a bank or economic consultancy. Apparently not.

The mainstream media is in the habit of reporting every new forecast enthusiastically, hailing the strong recovery that is in the cards for BC. There is no context provided, no questions asked. How does the latest forecast compares to the previous forecast issued by the particular outfit last month or last year? How does it compare to other economists’ forecasts? These things don’t seem to be pertinent to the story being told.

This morning, for example, the Vancouver Sun ran a decent size article on the Conference Board of Canada’s latest quarterly provincial economic forecast. Optimism streamed from every line, starting with the introductory sentence:

Olympic spinoffs and an improved outlook for forestry and manufacturing will make British Columbia the leader in economic growth among Canadian provinces in 2010, says the Conference Board of Canada.

B.C. will post growth of 3.7 per cent over the year…

Sure, 3.7% sounds like a high number and at the heels of negative growth for 2009 it’s nothing short of impressive. But in the end of January, those same economists were forecasting 4.1% growth (that’s the number they provided to the Ministry of Finance as members of the BC Economic Forecast Council).

Wait a second. This means that their current 3.7% forecast is actually a decline from what we thought was going to happen just over a month ago. Shouldn’t we be asking why the downward revision instead of celebrating?

Ignoring the hard questions won’t make the problem go away. As we approach the 2010 BC budget release, we need to take a realistic look at BC’s economic prospects and recognize that while our economy (GDP) is no longer contracting, we are still far from our pre-recession levels of employment or economic output. This will be a long, slow recovery and British Columbians will be better served by a government that recognizes this.

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