BRITISH COLUMBIA – A housing-led growth …

1 RBC ECONOMICS | RESEARCH 2 PROVINCIAL OUTLOOK | DECEMBER 2017 Still plenty to offer There s much to be impressed with when it comes to BRITISH COLUMBIA s econo-my. growth has been strong averaging annually in the past four years broadly based across economic sectors and resilient in the face of turbulence in the provincial housing market last year. BRITISH Columbians enjoy some of the brightest job prospects in the country and feel confident because of it. We think that we ll be impressed again in 2018, although we re lowering our growth ex-pectations somewhat because a number of headwinds. We expect that rising in-terest rates will cool consumer spending and housing market activity. Economic recovery in Alberta is poised to temper the flow provincial migrants moving to BRITISH COLUMBIA and restrain overall population growth .

2 We forecast GDP growth to moderate from in 2017 to in 2018. We see the moderation continuing into 2019 with growth easing to Torrid pace of job creation won t be The BC labour market s performance in the past two years has been nothing short of stellar. Employment growth averaged annually, which is some-thing we haven t seen in the province since the mid-1990s. The unemployment rate dipped to by the late stages of 2017 a nine-year low point. Can such a torrid pace of job creation be maintained in 2018? Our view is that it won t. In large part this is because it will get increasingly difficult for employers to find candidates to fill job vacancies. BRITISH COLUMBIA s labour pool clearly saw a large influx of job seekers from Alberta since the recession began in that prov-ince in 2015.

3 But with economic conditions and job opportunities improving in Alberta, we expect that influx to diminish. We still project employment to grow in BRITISH COLUMBIA in 2018 but at the more moderate pace of This would be sufficient to keep the unemployment rate historically low at overall in 2018 the lowest rate among the provinces..which will have implications for other sectors of the economy The moderation in job creation will have broader implications for the provincial economy. For instance, we believe that it will unwind part of the tremendous strength in consumer spending in the past two years. BC retail sales rose by in 2016 and are set to increase by in 2017 a record for BC and the strongest rate seen in any province since 2008. More moderate job growth will also take some of the steam off homebuyer demand in the province.

4 On this front, though, we think that rising interest rates and more stringent mortgage lending rules potentially will be larger influences acting to cool the housing mar-ket and homebuilding activity. US protectionism poses risks Although BRITISH COLUMBIA is the province least dependent on the US market (the destination of approximately 50% of BC exports, which is still substantial), we expect rising protectionist sentiments south of the border and uncertainty about the fate of NAFTA to weigh on international trade. The softwood lumber trade dispute is a case in point. The odds of a quick resolution to the dispute un-fortunately are low in the current political climate. Several BC lumber-producing regions are at economic risk if BC lumber exports continue to face high tariffs.

5 BRITISH COLUMBIA Robert Hogue Senior Economist -10,000-5,00005,00010,00015,000200720082 00920102011201220132014201520162017 Source: Statistics Canada, RBC Economics ResearchPersons, 4-quarter rolling totalBritish COLUMBIA : Net interprovincial migration into BC from Alberta0123456789102007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Statistics Canada, RBC Economics Research% BRITISH COLUMBIA : Unemployment rateBritish COLUMBIA forecast at a glance% change unless otherwise indicated201420152016 2017F 2018F 2019 FReal rate (%) starts (units)28,356 31,446 41,843 42,600 38,000 32,500 Consumer price