British Columbians spending themselves deeper into debt

While people in Metro Vancouver are being squeezed by inflation, interest rates, and the high cost of living, it hasn’t put much of a damper on spending for things like clothing, vehicles, and recreational products.

At least until now.

The latest economic outlook from Deloitte Canada predicts consumer confidence may finally be catching up to the province’s economic realities.

The forecast points out that British Columbians have the highest amount of debt compared to disposable income in the country.

“As interest rates increase, it becomes more expensive to service that debt,” said Alicia Macdonald, senior manager of economic advisory for Deloitte Canada.

“Consumers are taking more of their income and putting that toward debt servicing costs, which means less is left over for consumer spending on general goods and services like dining out or buying a new car, for example,” she added.

Macdonald expects to see lower household spending on goods that are sensitive to interest rates, such as vehicles, as well as lower spending on durable goods like recreational products, though she suggests that may also be influenced by a COVID-19 lockdown hangover.

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“Part of that is due to the run-up in spending that we saw during pandemic lockdowns or restrictions on services. Households really substantially increased the spending that they were making on goods and away from services,” she explained. “So, we expect to see lower spending at retail stores this year in favour of more spending on experiences and services.”

Deloitte forecasts consumer confidence will start to recover toward the end of the year as inflation starts to cool more rapidly and the Bank of Canada possibly begins to reduce interest rates.

“I think that combination of factors, lower inflation, and an outlook that calls for lower interest rates, will help to restore consumer confidence that we are getting to the end of this rather tricky time when it comes from a household budgeting perspective.”

Deloitte’s outlook also suggests the B.C. real estate market will hit bottom later this year and start to improve from there.

“The fact is, we are seeing very strong population growth across the country as immigration targets have increased substantially. Ultimately demand for housing comes down to the growth in your population,” Macdonald tells CityNews. “As we get to the second half of this year, conditions should start to improve modestly with a more fulsome rebound expected in 2024 as those lower interest rates work their way through the system and to help boost demand.”

And while B.C.’s economy may have been among the strongest in Canada over the past couple of years, Deloitte predicts the province may be hit the hardest by an expected downturn this year.

“B.C. has been an economic powerhouse — very strong interprovincial migration, very strong investment on the non-residential front, excellent conditions in the forestry sector in 2021 brought a lot of profits into the province — but this year we are seeing a pause on some of those factors.”

In 2023, Deloitte notes the forestry sector is slumping and some of the province’s mega projects are winding down their spending.

“LNG Canada, the Coastal GasLink pipeline, and also the Trans Mountain pipeline expansion project — these are all very large projects that have fueled growth in the province and they are all kind of coming to an end in the same year.”

However, she expects the province’s economy will begin to bounce back next year as the housing market begins to recover.