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VANCOUVER, June 25, 2009 – British Columbia has been among the hardest-hit provinces during this recession, as what started out as forestry-specific downturn eventually spread to the construction, energy and consumer sectors, according to the Provincial Outlook report from BMO Capital Markets Economics.

“Real GDP will likely contract 2.5 per cent this year, with the prospects for recovery pointing to a slightly above-average 2.0 per cent advance in 2010,<” said Robert Kavcic, Economist, BMO Capital Markets.

While housing markets in Canada and the U.S. are showing signs of stabilizing, a significant rebound in construction activity is not expected in the coming year, largely because of overbuilding during the last cycle. “Housing starts in the province have plunged to levels last seen at the depths of the downturns in the early 1980s and late 1990s, and while sales have rebounded smartly thanks to improved affordability, further cooling by the autumn is expected,” noted Kavcic.

Compounded by a weak U.S. housing market, the forestry sector will remain under intense pressure. Meantime, low natural gas prices threaten to weigh on activity in the energy sector despite an improved relative cost versus Alberta. Indeed, the Province increased the amount of royalty credits given out to natural gas producers (to build roads and infrastructure) by 20 per cent to $120 million in 2009.

The impact of the broad-based recession has also been felt in B.C.'s labour market, where employment was down 2.5 per cent year-over-year through May—among the worst declines in Canada. While construction employment has seen the sharpest declines, down about 17 per cent from its peak, service sector employment has stalled. “The 2010 Olympics should provide a boost to the labour market and retail sales activity, but the strength will likely prove short-lived,” according to Kavcic. “Indeed, most of the Olympics-related construction activity is already at or near completion.”

The British Columbia government is forecasting a $495 million deficit for fiscal 2009/10 – its first foray into the red in six years after it amended its balanced budget law. The Province will provide economic support through infrastructure spending in a three-year, $20 billion investment plan targeting transit, roads, schools and hospitals. A revised post-election budget is expected on September 1, and a significant upward revision to the deficit forecast is possible.

The complete report can be found at www.bmocm.com/economics.

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