Worse-than-anticipated economic conditions have prompted a further downward revision to Alberta’s 2019 growth forecast, according to a report released on Monday by Scotiabank Economics.
The negative conditions are anchored in oil and gas investment but spread somewhat beyond that industry, says the report.
Economic growth is forecast at a meagre 0.5 per cent this year in Alberta – the lowest in the country.
“Firms have scaled back capital outlays in response to uncertainty vis-à-vis insufficient pipeline transportation capacity, a trend reflected in May active drilling rigs’ plunge to the second lowest-ever recorded level for that month. Province-wide retail and automobile purchases have slowed substantially versus last year, as has homebuilding activity, though home sales in major cities look to have bottomed out,” said the bank’s provincial outlook.
“Markets continue to adjust to government-mandated oil production cuts put in place to alleviate the differential between the Western Canada Select (WCS) price and the West Texas Intermediate (WTI) benchmark. In response to the policy, WCS prices have risen beyond the level consistent with transportation costs, which has made rail transport uneconomical and crimped oil exports. While this should prompt further relaxation of output caps as the year progresses, with the Line 3 pipeline delayed, and completion of the Trans Mountain pipeline unlikely until at least 2022, sustainable supply-demand balance in the oil patch – and a more stable investment climate – looks to be at least a few years off.
“We now expect Alberta to recuperate its 7.4 per cent, 2015-16 output contraction by 2020 rather than later this year, but the province should skirt recession in 2019. Diversification away from oil and gas remains a key long-term challenge, but after a two-year, seven per cent expansion over 2017-18 – more than any other jurisdiction – the energy sector exerts a smaller influence on the economy as a whole. …”
Scotiabank forecasts Alberta’s economy to grow by 2.5 per cent in 2020. The bank said economic growth for 2018 was estimated at 2.3 per cent while growth in 2017 was 4.4 per cent.
“Unlike in past downturns, full-time hiring continues in manufacturing and in much of the services sector. Alberta also continues to draw skilled newcomers and migrants from other provinces, albeit at a more subdued pace than during the last oil price boom. Nevertheless, there is no question that some segments of the population are feeling pain during the Alberta economy’s ongoing transition towards more services-oriented growth,” said the report.
“Full-time employment for prime-working age men has yet to fully recover from the 2015-16 downturn, and there is evidence that younger, rural, and less educated workers have not realized the same benefits as other workers during the expansion and upswing in job creation witnessed since 2017.”
Mario Toneguzzi is a Troy Media business reporter based in Calgary.
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