Alberta will experience another year of steady economic growth, if not quite at the same robust rate it achieved in 2011, as higher oil prices continue to power a strong recovery.
“Alberta is looking like it will be the clear leader among all the provinces in terms of economic performance in 2012,” says Alex Koustas, an economist with Toronto-based Bank of Nova Scotia’s economics department.
On average, economists are forecasting growth in Alberta’s real gross domestic product at a rate of around 3.1% in 2012, roughly a percentage point higher than the projected rate in the rest of the country. After a tough 2009-10, during which the province was hit harder than its peers by the recession, Alberta surged in 2011, posting an estimated real GDP growth rate of around 3.5%, vs an estimated 2%-2.5% in Canada, overall.
Underpinning the recovery has been higher global oil prices, which traded in the US$80-US$110 a barrel range through 2011. Many oilsands projects that temporarily shuttered during the recession were re-launched beginning in the latter part of 2010 — and activity in the sector continues unabated. In addition, foreign investment, particularly from China, continues to pour into the region.
Darkening the economic outlook for Alberta, however, is the threat of a possible global recession, which would push down the price of oil and, subsequently, put a brake on growth.
On the other hand, political unrest in the Middle East may lead to a spike in oil prices. Economists are projecting that oil will hover around the US$85-US$100-a-barrel range in 2012.
Natural gas prices, the futures contracts of which were trading at around US$2.40 per million British thermal unit (mmBTU) in mid-January, should rise somewhat, with economists projecting a price target of around US$3.50 mmBTU for 2012. At these relatively low prices, caused by an oversupply on the North American market, natural gas project activity remains relatively quiet — and an obstacle for the provincial economy overall, albeit a modest one.
“It’s a great sign that despite the low price of natural gas, the province is still doing so well,” says Todd Hirsch, an economist with ATB Financial in Calgary. “That’s the oilsands effect, of course, and the very large capital investment being made there.”
Indeed, employment in the province is booming, with almost 100,000 new full-time jobs created in the province last year, representing half of all the new jobs created across Canada. In fact, some sectors are experiencing labour shortages, although nothing as drastic as those that affected Alberta during the most recent boom.
Economists project that the province will continue to produce new jobs, with the unemployment rate dropping to a projected 5% in 2012 from an estimated 5.5% in 2011. The flow of inter-provincial migration has reversed again, with job seekers returning to Alberta, although in manageable numbers — for now.
The boost in employment has created a concurrent spike in retail activity and consumer confidence across the province. Residential real estate prices remained stable in 2011, but housing starts increased in the second half of the year. “Calgary could be an outperformer [in terms of real estate prices] given the strong economic outlook,” Koustas says.
Commercial real estate has also undergone a turnaround, with Calgary experiencing just an 8% vacancy rate, a pleasant surprise compared with the doom-and-gloom projections of just two years ago, economists say.
Alberta’s fiscal situation is also relatively solid, with the province carrying no debt and reporting a projected deficit of $3.1 billion for 2011-12. The province will likely tap into its contingency funds to cover the shortfall.
The provincial Progressive Conservative government will head into what will almost certainly be a spring election led by Premier Alison Redford, who took over the reins from Ed Stelmach in October. In its next budget, expected in the coming weeks, the government will look for ways to address the deficit without cutting services too close to the bone.
“With no provincial sales taxes, the challenge for any Alberta government has always been the volatility of the revenue,” says Jacques Marcil, a senior economist with Toronto-Dominion Bank in Toronto. The province relies primarily on royalties from the energy sector for revenue.
Two controversial pipeline projects will likely dominate the news in the province in 2012: Keystone XL, which is being proposed in order to transport oil from Alberta to Texas, and Northern Gateway, which is intended to transport oil from Alberta to Kitimat, B.C., and then to markets overseas.
Both projects are facing considerable opposition from environmental groups and other stakeholders. And Keystone XL was dealt a blow in January when the U.S. state department denied a permit for the pipeline. Another application for the project has subsequently been submitted.
In the near term, however, the fate of those projects will not affect the province’s economic outlook, economists say, even if they are blocked. Says Koustas: “All the oilsands projects that are on tap to be built aren’t really conditional on these two pipelines going ahead.”
Of the two projects, however, Northern Gateway will have a greater negative effect on the province’s economic prospects if it doesn’t go ahead in some form, economists suggest. “If we can’t sell the bitumen to other markets, investment in the oilsands won’t necessarily dry up, but it will plateau pretty quickly,” Hirsch says. “It’s a real concern.” IE