Economic Outlook 2025: Will slowing interest rates and completed megaprojects help B.C. rebound?

Do you feel better off than you did at this time last year?

If the answer is “no,” you’re not alone. The final numbers aren’t in yet, but most estimates put British Columbia’s real GDP growth for 2024 at around 0.6 or 0.7 percent. Now consider that this GDP pie had to be shared out among a population that grew 2.5 to 3 percent, and you realize that the average person’s income has actually been shrinking.

The main culprit is well known. All across the developed world, from 2022 through the start of 2024, central banks jacked up interest rates to control runaway inflation. The monetary policy did exactly what it was intended to do, which unfortunately also entailed trimming economic growth.

Here’s some good news: 2025 won’t be as bad.

Interest rates are coming down again, which means families can begin to spend on other things than servicing debt, companies can consider investing in expansion and so on. Don’t get excited; growth will likely remain subdued—around 1.5 percent this year. But it’ll be an improvement.

Why rates matter

“What sets B.C. apart is its lofty average household debt burden, which is the highest among the provinces,” wrote TD’s economics team in the bank’s fall provincial forecast. The high cost of housing here makes the province uniquely sensitive to interest rates. So while there still may be homeowners facing “rate shock” upon renewing their mortgages this year, those loans will be at a percentage point or so lower than in 2024.

And yes, inflation has been defeated for the foreseeable future. “Inflation hasn’t been a problem for several quarters now,” says Bryan Yu, chief economist at Central 1 Credit Union. Durable goods prices are actually falling, food prices are normalizing. The only components of the Consumer Price Index still going up fast are shelter-related: rents and mortgage payments. Those too are expected to moderate in time.

There’s nothing to suggest interest rates won’t keep falling in 2025. Not, perhaps, to the low levels we saw pre-pandemic, but, by year-end, to the sub-3-percent level that makes borrowing feasible.

A watershed for megaprojects

This year marks a turning point as four concurrent energy megaprojects, each among the largest in B.C.’s history, reach completion and become operational. The first, the Trans Mountain oil pipeline expansion, actually turned the corner in 2024, to be followed by the Site C dam, Coastal Gaslink pipeline and LNG Canada terminal, all expected in the first half of 2025.

The wind-down of construction has been evident in the sector’s employment and capital spending figures for some time now. “In the last quarter of 2023, there was less than 50 cents of new construction starting for every investment dollar that ended. New construction projects continued to wane over the first quarter of 2024 as well,” notes RBC economist Rachel Battaglia, a member of the bank’s macro and regional analysis group. The completions saw capital expenditure intentions dip 5 percent province-wide in 2024—the first drop in capital expenditures since 2020. Those will almost certainly decline again in 2025.

In fact, almost all of B.C.’s above-average job creation, GDP and productivity growth since 2017, compared to other provinces, can be attributed to the megaprojects, our forecasters agree. Without them, some fear the province will once again drop below the national average in per capita GDP.

On a more positive note, the project completions will be a boost for the province’s exports, especially of natural gas. They will also help government revenues.

The “policy problem”

Ken Peacock, senior vice-president and chief economist of the British Columbia Business Council, thinks 2025 could surprise on the downside, however, based on what he considers some especially troubling indicators:

• Private-sector payrolls. While public sector hiring has been brisk at all levels of government and in Crown corporations, “over the past two years we’ve had essentially zero job growth in the private sector.”
• Capital investment. Spending on buildings, infrastructure and even housing is much lower than population growth justifies.
• Interprovincial migration. From a net intake of 20,000 to 40,000 people in recent years, the flow went negative to a loss of 10,000 people in 2023-24.

Peacock attributes the souring economic climate to a “policy problem”—a cumulative piling-on of regulation (such as the 24 policy measures that make up the provincial government’s CleanBC plan) and destabilization of the land base through a revised Land Act and efforts to accommodate First Nations. “All this is adding up,” Peacock says.

More predictions for 2025…

Energy output will jump.

The commencement of liquefied natural gas exports this year from the mammoth LNG Canada terminal in Kitimat will boost prices at the wellhead for natural gas producers in Northeast B.C. and encourage more drilling activity. The fly in the ointment is the emissions caps imposed on the industry by the NDP government in 2017 as part of its CleanBC plan. Even in the wake of the NDP’s slim majority after the October election, Peacock thinks the government will ultimately revisit the CleanBC targets and loosen the caps. “Government needs the revenue,” he explains.

We’ll stop talking about hybrid work. Maybe.

While employers from Amazon to the federal government mandate unpopular return-to-office policies, a study by Wilfred Laurier University professor Tammy Schirle for the Conference Board of Canada finds that the rate of remote and hybrid work has stabilized over the past two years at around one-quarter of Canadian employees—lower than the 42 percent in 2020 but nearly double the rate pre-pandemic. And that’s unlikely to change, as employers make concessions where they can to retain valued workers. The office building will not be consigned to history, therefore, but don’t expect a return to full occupancy this year.

The education boom will end.

Higher education, public and private, has been a growth industry for at least a decade—an export industry, too, when it comes to the swelling numbers of foreign students studying at B.C. institutions. But with the federal government’s decision to rein in the number of visas issued to non-permanent residents—read: students and temporary foreign workers—“that’s fallen off the table as a growth sector,” Peacock says. B.C. has the highest ratio of non-permanent residents of all the provinces, representing 9.3 percent of the population. So the policy change will have a big impact here—positive for domestic students looking for class spaces and accommodations, but negative for schools and workers in the sector.

The north will struggle to retain population.

The impact of years of sawmill, pulp mill and particle board plant closures and reduced logging activity across the Cariboo and Northern B.C. has been masked until now by the construction employment created by energy megaprojects. With those projects substantially complete, a ­reckoning will set in. “There’s some pain in the forecast for Northern B.C.,” confirms Joel McKay, CEO of the Northern Development Initiative Trust. On the positive side, there is ongoing investment in transportation infrastructure in and to the Port of Prince Rupert and activity coming for the Blackwater and Cariboo gold mines. But forest-dependent communities such as Fraser Lake, Mackenzie, Houston, Quesnel and Vanderhoof have their work cut out for them in terms of reinventing themselves.

We’ll stop ignoring the provincial deficit.

“It’s the largest in our history, sitting at $9 billion now [for the 2024-25 fiscal year] and it could go higher,” laments Bridgitte Anderson, president and CEO of the Greater Vancouver Board of Trade. It’s already prompted downgrades from credit rating agencies and a warning from the Bank of Canada. The next provincial government will have to tackle it with some combination of higher taxes and fees and spending cuts once the election dust has settled.

The outlook for major export industries

Technology and services

The category of “professional and technical services,” which includes everything from accountants and engineers to data hosting, has seen huge growth since 2020 and there’s no reason to suppose it won’t continue.

Tourism

The travel and hospitality sector still may not surpass pre-pandemic highs this year due to the global economic slowdown and the dropoff in visitors from China, Yu says. There are potential catalysts for travel to B.C., however, such as the Web Summit, one of the world’s buzziest technology conferences, coming in May (it will also return in 2026 and 2027), the Invictus Games in Whistler and the FIFA World Cup in 2026.

Forest products

Though an inherently renewable industry, forestry seems to be stuck in a slow, structural decline. Once credited with generating 50 cents of every dollar in B.C., the sector now accounts for between 1.5 and 3 percent of GDP, with its spinoff effects registering no more than 10 percent. The combination of weak markets, falling timber supply due to beetles and conservation and a new round of U.S. softwood lumber tariffs has forest companies closing mills for good now, with little to no investment in new capacity. “Once you close those mills, I don’t see them coming back,” Yu says.

Mining

Spurred by strong demand for gold, silver and minerals critical to the energy transition, a dozen mining projects are now just a permit or two away from starting construction. Getting even half of them up and running over the next few years would move the needle for the provincial economy, Peacock says.

Film and television

“The province’s film and digital media has been flourishing,” Battaglia says. However, production spending may have peaked as streaming services trim spending in an effort to achieve profitability.

You don’t know what you’ve got…

Looking back, B.C. has been blessed with a number of unearned natural advantages over the past quarter century. Its appealing climate and lifestyle (by Canadian standards) made it attractive to well-educated young people who staffed and in some cases founded companies in knowledge industries like information technology, biotech and athletic fashion design. Its location on the Pacific Ocean and diverse population helped it benefit more than other jurisdictions from the rise of China and other Asian economies. Over the past decade especially, new extraction technology and market dynamics in the energy sector made it the recipient of huge new investments in energy infrastructure.

Time marches on, though, and none of these blessings are what they used to be. The high cost of living has taken some of the shine off B.C.’s vaunted lifestyle. As Battaglia puts it: “Quickly deteriorating housing affordability could make it more difficult for communities to attract and retain talent. We’re already seeing this with the share of interprovincial migrants from Ontario to B.C. reaching its lowest level in over a decade.” Meanwhile, a retreat from globalization and an increasingly polarized world has diminished the province’s Asia advantage. And the megaprojects are all done, probably not to be repeated.

We can wait and hope for the next undeserved gift to fall into our laps. Or we can get to work with what we have.