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VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 12, 2011) - The British Columbia economy is on pace to post 2.6 per cent growth this year, down from 4.0 per cent in 2010, according to the Provincial Monitor report released today by BMO Capital Markets Economics.

"Growth is expected to moderate further to 2.2 per cent in 2012; but, barring a deeper global downturn, growth should be supported by strong Asian export demand and continued resource-sector investment," said Robert Kavcic, Economist, BMO Capital Markets.

While challenged by lower U.S. construction activity, the forestry sector is benefiting from strong Asian demand as exports were up 12 per cent year-over-year through July; meanwhile, mining activity remains firm. Upwards of 40 per cent of British Columbia's total exports went to Asia in 2010, making B.C. Asia's largest supplier of Canadian exports. "Investment in the commodity sector will remain a source of longer-term growth, assuming the global economy doesn't slip into another prolonged downturn, taking commodity prices down with it," stated Mr. Kavcic.

"Our commercial customers remain optimistic about their business prospects in the current environment," said Derral Moriyama, Senior Vice-President, Commercial, Greater Vancouver District, BMO Bank of Montreal. "With strength in forestry and mining, and Pacific-basin trade continuing to grow in importance, our customers continue to look to upgrading their infrastructure and retool their processes for growth."

The lofty housing market remains a concern. "Existing home sales have cooled this year after strong growth in the second half of 2010, and average prices have slipped 5 per cent from their early-year high, partly reflecting softer activity at the very high end of the market," noted Mr. Kavcic. "At current rates of home sales, the supply of homes for sale has risen to 8.6 months, up from 6.6 at the start of the year and above the 5-year average of about 7 months. This suggests supply is growing faster than demand, which should create a more benign pricing environment."

On the fiscal side, the Province is projecting $2.8 billion of additional deficits through the 2013-2014 fiscal year – $2.3 billion of which is related to the elimination of the Harmonized Sales Tax (HST). "The HST elimination will bite finances through transition costs and a smaller tax base," said Mr. Kavcic. "Still, the Province is committed to balancing the budget by fiscal 2013-2014. Note that the long-run financial impact of the HST elimination appears to be less than had the HST remained in place, given that the Province had pledged to reduce the rate by two percentage points. S&P has also confirmed its AAA rating after the referendum vote, citing fiscal flexibility and a commitment to balancing the budget by fiscal 2013-2014."

The full Provincial Monitor report can be downloaded at bmocm.com/economics.