Two things are clear after digesting the First Quarterly Report released by the B.C. Ministry of Finance on September 14, 2026.
First, the province’s economy is essentially stagnant, with real GDP growth this year pegged at less than 1%, employment falling on a year-over-year basis, housing starts slipping, and existing home sales on track to decrease for a second consecutive year.
Second, British Columbia’s public finances are a complete shambles – in much worse shape than the economy. Under Premier Eby, huge operating deficits have become routine, the debt is skyrocketing on the back of frenetic government borrowing, and debt-servicing costs are rising inexorably – limiting the government’s fiscal capacity to fund programs and respond to future shocks.
A Stalled Economy Amid Trump’s Trade War
Like Canada as a whole, B.C. is facing significant economic headwinds thanks to Donald Trump’s twin “wars of choice” – a once unimaginable trade conflict with Canada, and a failed attempt to bring the Iran to heel through a bombing campaign that has pushed up global energy prices and caused chaos and supply chain disruptions in the wider Persian Gulf region. These external developments are hitting B.C.’s economy and have aggravated several worrisome trends that pre-date Trump 2.0 – the rolling crisis in the rapidly contracting forest industry, a declining manufacturing sector, and the erosion of the province’s overall competitiveness for both private sector investment and top talent.
The Ministry of Finance’s updated economic forecast is summarized in Figure 1. As noted above, this year B.C. should eke out a sliver of growth after inflation, with a modest rebound to follow in 2027-28. The government’s revised top-line GDP growth projections are close to our own. Owing to a dwindling population fueled by out-migration to other provinces and fewer new immigrants arriving, GDP per person should post modest gains over 2026-28, on the heels of last year’s 1.5% advance. This is a silver lining in an otherwise uninspiring economic forecast.
Figure 1
After dropping slightly in 2026, employment in B.C. is likely return to a modest growth trajectory in 2027-28. Inflation as measured by the all-items Consumer Price Index (CPI) should retreat to 2% in the next two years. This forecast assumes a partial unwinding of the Canada-U.S. trade war and greater stability in – and increased oil shipments from – the Persian Gulf by early 2027.
A word should be said about the housing market. After starts reached ~44,200 last year, ICBA Economics foresaw a significant slowdown in B.C. housing starts in 2026-27 in the face of dwindling demand, slumping MLS sales, lingering affordability issues, layoffs in the real estate development industry (presaging less building in the future), and the ongoing “cost of delivery crisis” in large parts of the homebuilding sector. As it happens, the picture hasn’t evolved quite as we anticipated.
Specifically, while home sales have been weak and home prices (and assessed values) have softened, housing starts have held up better than we expected. What explains this? Basically, while fewer new homes are being built for prospective owner-occupiers, more units of social housing are under development. In addition, the supply of purpose-built rental housing is expanding thanks to robust demand and the effect of various government incentives to encourage new rental development. Even so, we judge the Ministry of Finance’s latest forecast for housing starts (42,321 in 2026) as too upbeat. A more realistic estimate in ICBA’s view is around 35,000, which takes into account the fact that annualized starts in the three months ending in July 2026 were running around 30,000. For 2027, ICBA expects housing starts to remain near 35,000, well below the Ministry’s projection.
As shown in Figure 1, the Ministry of Finance believes economic growth will pick up in 2027-28. ICBA Economics shares this assessment. Like the Ministry of Finance, our B.C. forecast assumes a return to modest population growth post-2026, a stabilization of housing markets accompanied by increased sales activity and slightly firmer pricing, stronger Canadian economic growth, and progress in advancing more large-scale B.C. projects – mainly in the energy, mining, transport, and infrastructure sectors. The result, in 2027-28, is moderate economic growth – far short of an economic “boom.”
An Unfolding Fiscal Disaster
If the economic outlook calls for caution, the province’s fiscal situation invites despair.
Premier Eby has presided over nothing short of a fiscal calamity. Having inherited an operating surplus of almost $1 billion when he succeeded John Horgan in late 2022, he has driven the province into a string of record deficits – with no end in sight (see Figure 2). The core problem is steeply rising government expenditures against the backdrop of a generally sluggish economy and a deteriorating business climate.
Figure 2
The First Quarterly Report predicts that this year’s operating deficit will be almost $14 billion, higher than the government assumed when Budget 2026 was tabled. Moreover, the decision to stand down from a planned increase in the provincial sales tax, as confirmed by the Premier last week, promises to push this year’s operating deficit closer to $15 billion. With the October 24 provincial election, we can be certain the NDP will be making expensive promises to a disenchanted electorate, driving the baseline deficit higher still.
Measured as a share of GDP, British Columbia, for the first time in history, is running the biggest operating deficit of any jurisdiction in the country. And the NDP government’s three-year fiscal plan shows the pattern continuing. Should the Eby government retain power and stick with the fiscal targets outlined in the First Quarterly Report, the NDP government will have accumulated almost $70 billion of operating debt over the period 2022-23 through 2028-29. Four years ago, before Mr. Eby became premier, the accumulated operating debt was zero.
Mr. Eby’s deficits are one factor behind the exploding provincial debt. The government also undertakes extensive off-budget borrowing to pay for capital projects across the provincially supported public sector. Under Premier Eby, debt issued to finance capital spending by the government, its agencies and Crown Corporations has been soaring. B.C.’s total debt was $89.4 billion when Mr. Eby became premier; today, it stands at $181 billion – up more than 100% in four short years. The debt is on course to hit $236 billion by 2028-29, according to the government’s fiscal plan. Figure 3 provides the gruesome details.
Figure 3
We can be sure that the government elected on October 24 will face an exceptionally difficult fiscal situation and have no choice but to pivot to a policy of fiscal austerity -- regardless of any promises made in the current election. After four years of epic fiscal mismanagement under Mr. Eby, British Columbians can look forward to a period of spending restraint, tax hikes and higher borrowing costs.