One of Alberta’s premier economic expert said the province is still mired in a slowdown, but it appears the province isn’t sinking any deeper.
Speaking at Wetaskiwin’s Montgomery Glens Golf Course Jan. 10, ATB Financial’s chief economist Todd Hirsch spoke to a full room about 2017’s economic outlook in Alberta.
Hirsch began by stating economic slowdowns occur in Alberta on a regular basis, usually about every seven years. He said Alberta has had a noticeable amount of bad luck lately though, as the economic slowdown hit it’s worst point in May, 2016, which is the same time the Fort Mac forest fire happened.
Looking at the current situation, Hirsch said the employment situation doesn’t seem like it’s going to recover in 2017. “Whenever you talk about jobs, that’s when a recession gets very emotional,” said Hirsch, noting the stress of unemployment can weigh heavily, whether it’s directly or friends and family.
Employment
Hirsch said 2013-14 was the high water mark for the latest oil and gas boom in Alberta. There was a record number of people working and very high wages were being paid.
Today, the oil and gas sector has shrunk 24 per cent compared to two years ago. Employment is down 3.7 per cent from two years ago, and total wages paid are down 5.8 per cent too.
Petroleum
Hirsch said the single biggest factor in the current economic slowdown ahs been the plunging price of a barrel of crude oil, and excluding that, Alberta’s economy still looks similar to two years ago. “Economically, there hasn’t really been another change,” said Hirsch.
He said the price plunge began two years ago when OPEC decided to dramatically increase production to lower the price and drive competition out of the business, in essence. Hirsch said that strategy was successful, as 2015 and 2016 saw a lot of production come off-line.
However, the economist noted OPEC members feel pain from low prices too, as the Saudi Arabian government depends heavily on petroleum revenue resulting in production being cut slightly. “So now they’ve sort of switched tunes a bit,” he added.
He said oil prices have rebounded to about $50 to $55 a barrel, which is almost double from the same time a year ago. However, $55 is still a concern because Alberta is considered a “high cost” place to produce petroleum.
Hirsch said the price of oil will probably not change much in 2017, staying between $50 and $60. OPEC is one factor, but another is the U.S. and their ability to produce shale oil. “I don’t think $80 oil is very likely this year,” said Hirsch.
Construction
Hirsch said the Alberta construction industry is an interesting topic, as some pundits wonder whether too much development has occurred in this province over the past decade.
He said building permits are a reliable indicator of future activity. Logically, if a building permit has been issued, it’s likely the holder will use it.
Building permits in Alberta are down 26 per cent from 2014, meaning a slower construction industry. The economist did make a strong point about that number though: Looking at the 10-year average in Alberta building permits issued, Alberta is only down six per cent. “I would call that a slowdown, but not a catastrophe.”
The economic slowdown has also caused the construction industry, hungry for work, to reduce their costs too noted the economist. Another interesting point Hirsch made, particularly for the Calgary market, is that a lot of construction begun a few years ago is now nearing completion, meaning a surplus market is going to have even more options available.
Hirsch also stated it seems, with lower construction costs, different levels of government may have more infrastructure projects planned.
Non-energy sectors
Two unsung heroes of the Alberta economy, tourism and agriculture, have reason to be optimistic stated Hirsch, especially tourism.
Even though tourism is the number four industry in Alberta, it has advantages right now such as a low Canadian dollar. That might explain, noted Hirsch, why Alberta has had several consecutive record-setting tourism seasons and looks poised to have another in 2017.
The American and Asian economies are doing better too, meaning their people may be willing to travel and spend money.
Agriculture, noted Hirsch, has been looking up in recent years, even though it’s had its challenges, such as the heavy 2016 rains in some regions. Southern Alberta is dealing with a bovine TB issue too.
Hirsch stated one area, agri-food, has a lot of potential. He said eating patterns in Alberta are changing and there seems to be more interest in locally produced food. Some Alberta restaurants in particular seem to be going out of their way to point out they offer local food.
Wild cards
Hirsch wrapped up his presentation by briefly touching on the international political situation. As he stressed, he’s not a political commentator but felt obligated to mention a few situations that could affect economics.
First, he said the president-elect Donald Trump poses a quandary: he’s rather unpredictable and economists are wondering what he’s going to do with trade. Hirsch said Trump appears to support pipeline projects, which would be good for Alberta.
Europe has several important elections coming up this year, and after Great Britain voted in favour last year of leaving the European union, some economists are wondering if more nations will leave, and what that means for markets.
Lastly, Hirsch said Russia and China, the international mavericks, remain question marks for economists.