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MAJOR CITY INSIGHTS - Pandemic reshapes economic picture for Victoria British Columbia

Published by Conference Board of Canada. Read full article here.

Key Findings

After expanding by an annual average of 3.5 per cent from 2016 to 2019, Victoria’s economy will contract by 4.4 per cent in 2020, the result of a 1.8 per cent output decline in the first quarter and a 7.7 per cent drop in the second. The city’s public administration sector, which accounts for almost 20 per cent of the city’s total output (second only to the finance, insurance, and real estate sector) has partly insulated the region from the impacts of COVID-19 this year, as public administration output is expected to rise by 6.2 per cent. Unfortunately, many of the other sectors of the local economy will not be so lucky.

Services sectors such as the arts and entertainment sector and accommodation and food services were brought to a standstill in March as the borders and bars and restaurants were closed when the pandemic hit. Indeed, output in the accommodation and food services sector tumbled almost 58 per cent in the second quarter of this year alone. As the economy continues to regain ground through this year and next, these sectors will start to recover and support overall economic growth in the city. Our call is for a 6.6 per cent increase in Victoria’s real GDP in 2021 and an additional 3.0 per cent gain in 2022.

Despite continued strong growth in output last year, Victoria’s employment weakened, down 0.3 per cent, the first annual decline in jobs in five years. An even larger drop in the labour force in 2019 meant that even though there were fewer jobs last year, the region’s unemployment rate continued to fall, slipping to a near record low of 3.4 per cent the lowest since 2008. Not surprisingly, with businesses shut for part of the first half of 2020, the pace of job loss will be large this year, with employment set to fall 4.9 per cent. Almost 20,000 jobs disappeared in the second quarter alone, causing Victoria’s unemployment rate to more than triple to 11.0 per cent. Although we are seeing employment start to come back in the second half of 2020, the unemployment rate will still average 7.2 per cent for the year overall. Our call is for a 6.0 per cent increase in employment in 2021 as the impacts of the pandemic fall off. In turn, Victoria’s unemployment rate will drop to 4.4 per cent next year still above its pre-pandemic level.

Victoria’s retail sales dipped 1.1 per cent last year, a rare occurrence for this sector. They picked up in the first quarter of 2020, but then fell in the second quarter, down 3.5 per cent, as businesses temporarily closed and as consumer confidence faltered with the steep drop in employment. Sales have since been on the uptick again in recent weeks. As a result, our call is for a 1.9 per cent increase in retail sales for the third quarter and a 2.8 per cent rise in the fourth. All told, this will lead to a 2.7 per cent increase in retail sales for Victoria this year, the only major city in our outlook to produce a gain. We are forecasting even stronger growth of 6.9 per cent in 2021 as economic activity increases.

The provincial tax on home purchases by foreign buyers led to a drop in housing starts for 2019. Still, the total number of starts was relatively healthy, given that last year’s decline was the first in five years and followed a strong run-up that saw Victoria’s housing starts reach 4,300 units in 2018, their second highest level ever. Single-detached starts remained on a downward trend through the first half of this year, while multiple-unit starts fell in the first quarter but recovered slightly in the second. Overall, we expect Victoria’s housing starts will slip a little lower in 2020, falling from 3,500 units last year to 2,900 this year. Population aging should keep starts moving even lower in the coming years as well, even as the economy recovers. By 2024, Victoria’s housing starts are forecast to fall to 2,000, closer to their average levels in the mid-2010s.

With travel suspended or slowed by the pandemic, our call is for Victoria’s population growth to ease to 1.2 per cent in 2020, down from an average annual increase of 1.7 per cent over the past five years. The weaker growth will largely be due to lower migration levels. We expect the net number of people coming to Victoria from other provinces will fall from 2,200 last year to 1,500 this year, while net international migration will slow from 2,550 in 2019 to just 1,150 this year.

Read the full article here.


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