BCREA Housing Forecast: Second quarter 2012

Economic Outlook

Incoming data from the first quarter of 2012 shows that the BC economy is sustaining and even building on, the momentum it gained towards the end of 2011. Growth in consumer spending has be buoyed by an improving labour market and residential and non-residential investment continues to be supported by historically low interest rates.

While BC’s economic growth has been steady to start the year, uncertainty in the global economy continues to loom over 2012. A Eurozone recession and the significant risk of a Greek exit from the Euro have rattled financial markets. First quarter growth in BC exports to the United States and Japan softened as have sales to Asian markets outside of China. Indeed, China is the only major market in which BC exports grew year-over-year, and even that growth will slow if the Chinese economy falters as some analysts expect. On a positive note, economic growth in the United States is very likely to improve on last year’s anemic pace which should help to support BC exports.

While elevated household debt remains the principal domestic risk to the provincial economy historically low interest rates meant that BC households are more than able to meet their current debt obligations. As a result we do not view the debt being careered by consumers as a cause for alarm.

However, a high level of household debt does have medium-run implications for growth and financial vulnerability and cannot be ignored. An increasing debt burden magnifies the vulnerability of BC households to economic shocks such as loss of employment.

Moreover, as interest rates normalize the cost of servicing debt will consume a growing share of household disposable income. As a result, consumers may cut back on other expenditures thereby creating a drag on economic growth until their debt level becomes less onerous.  

Article from Realtor Link, June 15, 2012

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