2022 Economic Review
2022 was about inflation as the cost of living soared all over the world. Pandemic price pressures, initially dismissed as transitory, turned out to be enduring with Russia’s invasion of Ukraine causing a fresh spike in food and energy costs while the Q4 resurgence of COVID-19 in China prompted renewed lockdowns and supply chain disruptions. Central banks around the world responded by tightening monetary policy aggressively in an effort to combat inflation. While inflation has receded from its peak, it has come at the cost of reduced economic growth as higher interest rates began to bite. Global GDP growth is estimated at 3.4% in 2022, down from 6.2% in 2021.1
The Canadian economy grew an estimated 3.6% in 2022,2 above the 2.7% average for advanced economies.1 The Bank of Canada increased its overnight rate by 400bps in 2022, but the full impact of this tightening has yet to be felt as it takes time for the effects of policy rate changes to be felt fully throughout the economy. As such, inflation remains elevated at 6.7% at the end of 2022, significantly above the inflation-control target range of 1.0% to 3.0%, with excess demand built up during the pandemic continuing to exert upward pressure on prices and robust job gains maintaining upward pressure on wage growth.3
At the provincial level, 2022 GDP growth is estimated to be 3.0% for BC in 2022, with estimated unemployment of 4.6% near record lows.2 BC’s growth trailed the national average as its debt burden makes the province especially sensitive to higher borrowing costs. The housing market, which drove economic growth in 2021, slowed significantly in 2022 due in large part to higher mortgage rates. However, a reduction in inventory as sellers withdrew from the market kept BC price declines moderate relative to many other regions in Canada. Greater Vancouver residential unit sales and benchmark prices decreased 34.3% and 3.3% year-over-year respectively.4
2023 Economic Outlook
Reduced demand driven by higher interest rates is expected to drag on the global economy in 2023: GDP growth is projected to decline from 3.4% in 2022 to 2.9%.1 This decline is expected to be experienced primarily by advanced economies, with many developing and emerging economies projected to return to stronger growth after a slow year in 2022.
Canadian GDP growth is projected at 0.7% in 2023,2 below the 1.2% average growth forecast for advanced economies.1 Elevated interest rates are expected to moderate consumer spending and business investment. Transportation costs, supply chain challenges, and high energy prices are also expected to dampen economic activity. Additionally, labour demand is projected to slow in interest rate sensitive sectors, including construction, trade, and manufacturing. As a result, inflation is projected to decrease to the top of the Bank of Canada’s inflation-control target range by mid-2023 and to the 2% target by 2024.3
After outpacing national GDP growth in recent years, BC’s 0.6% GDP growth forecast is slightly below the 0.7% national average.2 A broad reduction in growth across most sectors is expected, although the unemployment rate is projected to outperform the national average at 4.7%.2 Elevated mortgage rates and slow economic growth are expected to further slow the Greater Vancouver housing market in 2023. Residential sales and average prices are forecasted to decrease 4.3% and 7.2% respectively.5 Declining sales may result in inventory normalizing after the pullback experienced in 2022.
Against this economic backdrop, BlueShore will seek selective opportunities to grow our highly-secured, high quality asset portfolio while maintaining appropriate credit quality, liquidity, and capital. Management will balance expense reduction with growth opportunities and maintaining our exceptional client service standards.
1 International Monetary Fund World Economic Outlook (January 2023)
2 BMO Provincial Economic Outlook (February 2023)
3 Bank of Canada Monetary Policy Report (January 2023)
4 Real Estate Board Greater Vancouver (December 2022)
5 British Columbia Real Estate Association Housing Forecast Update (February 2023)