Economy ‘firmly in the hands of the Bank of Canada’

The chief economist for British Columbia’s credit union association says he expects the trade sector in B.C. will deteriorate in the coming year as a result of the strong Canadian dollar.

“The fate of the Canadian dollar in 2004, and indeed the fate of the Canadian economy, does not rest on some global currency shift away from U.S,” Helmut Pastrick of Credit Union Central of British Columbia told a group of Vancouver business people. “It lies firmly in the hands of the Bank of Canada.”

Pastrick’s viewpoint reflected the overriding theme of the Vancouver Board of Trade’s Economic Outlook 2004
conference last week.

Jeffrey Rubin, chief economist and managing director for CIBC World Markets, predicted that everyone is going to get poorer unless the central bank moves to cut interest rates and bring them more in line with those in the U.S. With an 80-cent currency, he added, Canadian manufacturers face a nearly 20-per-cent cost disadvantage with their U.S. competitors, the largest gap since the early 1990s.

It is equally as punishing for the resource sector, he said. “The Canadian dollar has basically taken away all the rally in resource prices.”

Rubin said short-term interest rates, already at a 45-year low, will pull down long-term rates. “I can see in a couple of years an overnight central bank rate of around one per cent,” he said.

Pastrick also forecast a decline in B.C.’s trade balance for 2004, one of the first contractions in a number of years. He said there is still strength in some of the domestic economic sectors that will produce a moderate 2.4-per-cent growth for the B.C. economy.

The growth will be seen in real estate, construction, energy, retail, finance, high tech and tourism, he added.

A Statistics Canada report released earlier this month showed that 50,000 jobs were created in B.C. in the last four months of 2003. Pastrick is predicting about two-per-cent job growth in 2004.

Board of trade chief economist Dave Park noted an unprecedented number of
projects confirmed in the past year will have a substantial effect on B.C.’s economy.

The past year has seen $4.8 billion in capital investment in the province, resulting in the creation of an estimated 122,000 person-years of employment and $4.7 billion in wages and benefits.