B.C. budget is based on crystal ball: UBC professor

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      Finance Minister Colin Hansen has a rosy outlook for British Columbia’s economy next year. Addressing reporters earlier this month in the run-up to his budget announcement on Tuesday (February 17), he said that from zero growth in 2009, the economy is forecast to bounce back by 2.8 percent in 2010.

      Hansen based his outlook on the projection made by the B.C. Economic Forecast Council, a group of 12 experts from banks and think tanks that the government is required by law to consult as part of the annual budget process.

      Asked if British Columbians can take this prediction to the bank, council member and Ontario-based economic consultant Ernie Stokes let out a laugh after saying a quick “No”.

      “Basically, now there’s so much uncertainty, most of us are doing pre- and postbudget forecasts and alternative scenarios,” Stokes, managing director of the Centre for Spatial Economics, told the Georgia Straight by phone from Milton. “So you get a range where you could be, and then you”¦have to use your own judgment in terms of that—your sort of gut feeling.”

      Stokes admitted that when economies are in an upturn, forecasting is easier to do. In a volatile global situation, it can be a tricky business.

      In his February 2 media briefing, Hansen recalled that on September 12 last year, he announced that the government expected to generate about $1.2 billion more in revenues than it had budgeted for.

      On that same day, Hansen went on, the affairs of U.S. financial giant Lehman Brothers Holdings Inc. started to unravel, and an economic contagion soon spread across North America, Europe, and Asia.

      Now, according to Hansen, B.C.’s revenues over the next three years are expected to decrease by $6 billion. Since September, earnings from income taxes, sales taxes, property taxes, natural gas, and forest products have taken a steady nosedive.

      To illustrate the point, Hansen explained that every $1 change in the price of natural gas has a $3-million effect on revenues. From a high of $9.34 per gigajoule in June 2008, natural-gas prices plummeted to $5.98 in December.

      After years of surpluses, the provincial government is looking at deficits for the next two years.

      Asked by the Straight for his opinion on projections of growth for next year, SFU associate professor of economics David Andolfatto said jokingly: “Well, you know that these guys are just making this stuff up, right?”

      Andolfatto, an expert on macroeconomics, said that in fairness to economists who forecast, making projections is a difficult thing, and could be “probably, based more on a great deal of hope”.

      In the case of B.C., he explained that a good deal of its economy hinges on exports to the U.S. and other countries. “One has then to ask what determines the demand for our product around the world,” Andolfatto said. “Then you ask, ”˜What does that depend on?’ And you know, good Lord, pretty soon you start forecasting all sorts of things.”

      It’s no wonder, then, that economists at the International Monetary Fund and Bank of Canada couldn’t come up with the same forecast for Canada’s economy as a whole for 2010.

      According to the IMF, Canada will post a 1.6-percent recovery next year, which is less than half the Bank of Canada’s projection of 3.8 percent. In a $1.45-trillion economy, that’s a discrepancy of more than $30 billion.

      Mauricio Drelichman, an assistant professor of economics at UBC, explained that forecasting basically involves deriving conclusions from information and assumptions put into a model. “The problem usually is that these models tend to be way too simple and the real world is extremely complex,” Drelichman told the Straight.

      As such, he added, economists in academe find very little value in the exercise.

      “Economists try to explain why economies behave in a certain way and why economic actors—people—behave in a certain way, and we try to produce policy recommendations to address specific economic problems,” Drelichman said. “Forecasting, to us, is like looking in a crystal ball.”

      A decade of budget deficits and surpluses

      > Deficit in budget year 1998–1999: $1.2 billion

      > Surplus in 1999–2000: $5.2 million

      > Surplus in 2000–2001: $1.4 billion

      > Deficit in 2001–2002: $1.2 billion

      > Deficit in 2002–2003: $3.1 billion

      > Deficit in 2003–2004: $1.3 billion

      > Surplus in 2004–2005: $2.5 billion

      > Surplus in 2005–2006: $3 billion

      > Surplus in 2006–2007: $4 billion

      > Surplus in 2007–2008: $2.8 billion

      Source: B.C. Ministry of Finance




      Apr 28, 2009 at 5:49pm

      I to have done my predictions for the year when its comes to the economic climate here in BC and my guess is it is as good as theirs if not better.
      Joined on 04-25-2007

      Posts 103
      Re: Predictions for 2009
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      2009 is going to be a year many will want to forget.

      With foreclosures and bankrupt business and job loses become the everyday norm.

      Unknown disease watch out for that one as mutants take flight and cause fright.

      NDP take back the province of BC.

      Harper's popularity wavers and Liberals take lead.

      Recession takes on depression and BC inflationary prices the cause of much hardship and concern as food prices continue to climb.

      Real Estate continues to be cut down to size instead of balloned prices do to speculative buying.

      And finally is Harper out of here well I've just got to save something for a little suspense.