Economic challenges of COVID-19 matched by strong supports for people (flickr.com)

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Backgrounders

B.C. First Quarterly Report 2020-2021

The First Quarterly Report for the 2020-21 fiscal year shows the economic impacts of COVID-19 in B.C.

The province is forecasted to end the fiscal year with a deficit of $12.8 billion, because of unprecedented COVID-19 response measures and lower revenues.

Signs of economic recovery through improvements in employment, retail sales and housing activity support the projection of a partial economic recovery in 2021.

Economic highlights

  • B.C. real gross domestic product (GDP) is forecast to decline by 6.7% in 2020, before increasing by 3.0% in 2021.
  • After experiencing substantial job losses in March and April, the B.C. labour market has shown signs of improvement.
  • From May to August, B.C. regained roughly 62% of the total number of jobs lost since February. There were still 149,600 fewer jobs in August compared to February. B.C.’s unemployment rate for August is 10.7%, up from 5.0% in February.
  • Retail sales saw its largest monthly decline on record in April. However, retail sales rebounded as restrictions began to ease in May.
  • Retail sales were 0.2% lower in June compared to February 2020.
  • Housing market activity has been resilient despite the pandemic. July home sales were 25.5% higher than February.
  • An average of six private sector forecasters expect B.C. real GDP to decline by 5.4% in 2020 and grow by 5.2% in 2021. This is better than the expected decline of 6.4% on average across Canada for 2020 and similar to the 5.2% growth expected nationally for 2021.

Operating results

  • Compared to Budget 2020, revenue forecasts are $4.6 billion lower and expenses are $7.7 billion higher.
  • In comparison to the July economic and fiscal scenario, the impacts of the pandemic on revenues and expenses is $5.7 billion – a $600-million improvement from the July scenario.
  • The net cost of the government measures is $6.5 billion, including federal funding, which is $300 million higher than projected in July.
  • Budget 2020 forecasted an operating surplus of $227 million and the first quarterly report projects a provincial operating deficit of $12.8 billion, including a $700-million increase to the forecast allowance.
  • Revenue for 2020 is forecast to be $56 billion and expenses are forecast to be $67.8 billion, with an increase in the forecast allowance to $1 billion.
  • Government’s support for people and businesses in response to COVID-19 is estimated at $7.6 billion. This includes:
    • $5.81 billion in Supplementary Estimates spending for the COVID-19 Action Plan.
    • $1.8 billion for additional COVID-19 measures, including the one-time increase to Climate Action Tax Credit and Temporary Pandemic Pay and other revenue and relief measures.

Capital spending

  • Budget 2020 included $22.9 billion in taxpayer-supported capital spending over the fiscal plan. It included new investments to sustain and expand provincial infrastructure, including schools, post-secondary facilities, housing, transit, roads, bridges and hospitals.
  • Capital projects are proceeding and the construction industry is ready to deliver the Province’s historic capital plan.

Debt levels

  • Governments, like the private sector, borrow to finance the building of long-lasting capital infrastructure, such as schools, hospitals and highways. In recent years, B.C. has had among the best debt metrics and credit rating compared to other Canadian provinces.
  • Taxpayer-supported debt levels are projected to reach $59.8 billion by the end of the fiscal year – $10.6 billion higher than forecasted in Budget 2020.
  • The taxpayer-supported debt-to-GDP ratio is forecasted to reach 20.8% in 2020-21, up from the Budget 2020 forecast of 15.5%.
  • Despite the need for increased borrowing and higher debt levels, B.C. will benefit from low interest rates partially due to the Province’s triple-A credit rating.
  • As a result, the Province’s debt remains affordable.