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When someone asks where commodity prices are
headed, they’re really asking: what’s the outlook for
Last year, China consumed more coal than the rest of
the world combined and imported 70% of the world’s
seaborne iron ore. In 2012, China accounted for half of
the global growth in oil demand. It’s a commodity
behemoth and the recent slow-down in the Chinese
economy is a big reason for weakness in prices for this
sector. Should we be worried?
China’s economic growth is definitely slowing, but the
real concern is that official estimates of China’s GDP
growth are overestimated. Economists are scratching
their heads and coming up with widely varying
Why all this guessing? China’s growth numbers are
always suspiciously consistent and always within 0.2%
of the government forecast. Moreover, skeptical
analysts see hard data, such as industrial production,
energy consumption and construction, which are much
weaker than GDP, and are using it to create their own
estimates of what is going on. But it’s not just the data
that is worrying.
The big question is China’s real estate. Property prices
in 70 Chinese cities have fallen for more than a year,
and 60 million empty apartments await buyers.
The Chinese government is well aware of the risk and
has taken action. The Central Bank has lowered
interest rates three times and it has twice reduced the
amount of reserves that banks must hold, while easing
mortgage rules. Still, new construction starts have
fallen 16% in the first five months of 2015, a significant
hit to the economy.
The challenge is that China is trying to shift the focus
of its economy away from exports towards domestic
growth, all while gently deflating a housing bubble.
China has lots of resources, $4 trillion of reserves and
its tight control of the banking sector gives it policy
levers that other governments could only dream of.
The Chinese government can intervene to stimulate
demand, but China’s economy will grow a slower
What does it all mean for commodity prices? The
following graph shows China’s demand growth for oil,
which has been massively volatile, oscillating from
16% growth to 2%. And that was during times of
smooth sailing. We believe commodity prices should
improve in 2015, but producers should brace
themselves for more volatility as the world’s biggest
consumer of natural resources has a bumpy road
-Hendrik Brakel, CCC
Recently, our CEO, Caroline Grover and myself travelled to Prince George for the BC Chamber
AGM. We brought forward five resolutions from our membership and received support from
our colleagues across the Province.
The theme this year for four resolutions seems to be the continuing fight on four separate
issues where we have seen some success and support from Provincial and Federal
governments, but feel that there is still room for improvement. We recognize the positive
support the BC and Canadian Chamber networks receive from government on many of our
resolutions and sincerely appreciate that we are their go to organization representing business.
-Ken Carmichael, President, KCC
As spring races into summer, Kelowna’s economic numbers continue to reflect a sturdiness that makes us all feel optimistic. Our Chamber members are cautiously confident – not all businesses are enjoying growth, but optimism and expectations for good times ahead are a theme we hear repeated several times every week from business members: both those with new businesses, and those who are long established players in our market.
In terms of tracking spending and purchasing, it’s always instructive and often entertaining, to look at what Millennials are doing. Earlier this week, I heard that Millennials not only are entering their peak buying years, but that they are expected to soon surpass Boomers in total population. [NARGenerational Survey, Washington, DC, 2015] Good news for tech, general retail (more than 50% of Millennial households already have children) and real estate.
Millennials are 2.5 times more likely to be “early adopters” of technology than any other generation.[2015 Millennial Marketing]. This means lots more buying and upgrading.
Other interesting news for Kelowna this month included the Employment Insurance stats released May 21st. It’s no secret that Alberta saw a significant increase in EI numbers – in March EI recipients went up 24.7%. Large centres weren’t immune – Calgary’s EI numbers jumped, too.
By comparison, Kelowna shines in this regard: there were slight EI increases in BC outside of the province’s CMAs (census metropolitan areas of 100,000+ population). Again, Kelowna demonstrated immunity.
In fact, Kelowna and Guelph, Ontario have the lowest unemployment rates among ALL Canadian cities,according to Stats Can. Our two cities’ jobless rates are tied at 4.1%. Of course, that means a challenge for companies looking to expand and hire and acquire talent. That can place constraints on in-migrating companies which may look to establish elsewhere.
However, as we look ahead, we see the Central Okanagan Economic Development forecast of apopulation of 250,000 for our Kelowna CMA. The steady growth that COEDC predicts of 1.9% per year ensures that goods, services, real estate and our local industries will continue to expand.
Of BC’s three top industries, lumber, mining and real estate, real estate is a star in the Okanagan. In the central Okanagan (Peachland to Lake Country) residential sales were up 21.5% January-April over 2014.
The estimated spin-off economic impact of those $651 million in sales was an additional $99.5 million (renovations, appliances, taxes, etc.) [Okanagan Mainline Real Estate Board]., and let’s not forget the growth in international awareness of the Okanagan as we continue to take a world-leading role in the ‘farm to table’ travel experience. These travel experiences helped the BC-wide tourism industry generate revenues of $13.5 billion in 2012. Awareness is growing by mega leaps every year – dollars are sure to follow as our agri-businesses mature. [Destination BC]
Of course, the volatility of the Canadian dollar continues to concern many of our businesspeople, including those importing, exporting, and paying for travel expenses in the US or paying for any goods and services in US dollars. Pundits and economists continue to prognosticate, but the ride to a mor estable dollar isn’t one that is ending any time soon.
Still, the next two decades in Kelowna and in BC (“We’ll carry the country with our strength,” said a lecturer from Investors Group earlier this month) are going to put smiles on a lot of business people’s faces as expansion continues.
Earlier this week, BC Premier Christy Clark announced an agreement in principle with Pacific NorthWest LNG, owned in majority by Malaysia's Petronas, for a liquefied natural gas development on the province's northwest coast.
Clark said the LNG framework will result in stable, long-term revenue for BC and $36 billion ininvestment, including a proposal for an LNG facility near Prince Rupert, with spin-off employment throughout BC.
So what does all this mean for Kelowna? We are in the right place, at the right time, with the right product. We’re the fastest growing city in BC, ahead of Vancouver, and have great business and socialties to the top cities on the national list in Alberta and Saskatchewan. It’s a good time to be a part of the Kelowna Chamber of Commerce.
- Caroline Grover, KCC