Alberta continues to climb back from its deep recession of 2015-16. The province is expected to experience modest economic growth in 2018, building on the recovery that began in 2017.

“The reality is we’re still only halfway out of the hole,” says Todd Hirsch, chief economist with Alberta Treasury Branches (a.k.a. ATB Financial), a Crown corporation based in Calgary.

The province’s real gross domestic product (GDP) is projected to grow by about 2.5% in 2018, following an estimated rise of about 4%-4.5% in 2017. Last year’s strong GDP performance is largely a reflection of how hard the economy had been hit in the previous two years, when it contracted by about 8% in aggregate.

“This recovery is likely to be an extended one,” says Robert Hogue, senior economist with Royal Bank of Canada in Toronto.

Alberta’s economic recovery is due, primarily, to a resurgence in the price of oil, which was trading in the US$62-US$64 a barrel range in January after hitting a low of around US$30 a barrel just two years ago. Economists, including Marie-Christine Bernard, associate director, provincial forecast, with the Conference Board of Canada in Ottawa, expect the price of oil to taper back modestly in 2018, averaging around US$55 a barrel for the year, up from an average of US$51 a barrel in 2017.

“As prices move up, you’ll probably get more production from the U.S. in terms of shale oil, which will then put downward pressure on prices,” says Bernard.

Last year, there was a big bump in conventional oil drilling activity after a significant drop over the previous two years. Oilsands production also continued to rise from both existing oilsands projects and others just coming online now after having been launched in previous years. Capital expenditures continue to be directed toward existing projects, however, and no new ones are being launched.

“The longer-term outlook is not as bullish – as bright – as it used to be,” Hogue says.

Adds Hirsch: “Even at US$65 a barrel, [new oil-related projects] are not going ahead.”

Adding to the lingering uncertainty is the outcome of three pipeline projects – Keystone XL, the expansion of Kinder Morgan Canada Ltd.’s Trans Mountain pipeline and Calgary-based Enbridge Inc.’s Line 3 replacement program – which the province would like to be built in the coming years. Although progress has been made in pushing each project forward, regulatory and legal hurdles remain.

“Pipeline access, in 2018 and beyond, remains probably the most serious challenge to Alberta’s energy industry,” Hirsch says. Failure to get new pipeline projects built would be very negative, he adds: “Who’s going to invest in an industry if we can’t get the product out of the province?”

Despite headwinds, there’s plenty of reasons for optimism in the province. Most economic indicators turned positive over the past year and are likely to continue in that direction.

Unemployment dipped to a low of 6.9% for December 2017, down from 8.5% a year earlier, with continued improvement anticipated as the effects of a strengthening economy filter into the job market. In turn, consumer spending and confidence are picking up.

“Things such as motor vehicle sales have moved up in 2017,” Hogue says. “There are signs that consumers are willing to spend in the province.”

Residential real estate prices did take a hit during the recession, but the market remained resilient overall, says Bernard: “We didn’t see a major correction.” Prices are expected to move higher or to stabilize.

The commercial real estate market continues to suffer, though, with the vacancy rate in downtown office space in Calgary projected to hit as high as 30% this year. Office tower projects, begun prior to the recession, still are being built, adding to the glut.

“We’re seeing rents come way down for commercial office space, though not so much for retail space,” Hirsch says.

One of the bright spots for Alberta has been its manufacturing industry, which added more jobs than any other industry in 2017, Hirsch says: “A lot of that has to do with [oil] refining activity picking up, but also more jobs in agrifoods.” The agrifoods industry, which includes activities such as food and beverage processing, is considered part of the manufacturing industry.

Tourism was another strong industry in 2017; the low Canadian dollar relative to the U.S. greenback, in tandem with Canada 150 celebrations, helped to boost activity to record levels. Tourism will remain strong in 2018, Hirsch says, even if it doesn’t quite match last year’s performance.

An area of concern for the province is its fiscal situation. The provincial government projected a deficit of $10.3 billion for 2017-18, following a deficit of $10.8 billion for the previous fiscal year, in its most recent update. “It’s not a great picture,” Hirsch says.

Although running a deficit during a recession may make sense, Hogue hopes the Alberta government will provide details of a plan to balance the books, particularly now that the economy is in recovery.