Alberta’s Economy – Optimism on the back of the construction sector?
Many pundits claimed that the recent Alberta wildfires would send the province’s economy tumbling back to the Stone Age, but a peek behind the numbers reveal that those fears may have been exaggerated.
The flames that destroyed vast swaths of the Fort McMurray area, including many of the oil sand facilities, made crude oil production plunge by about one million barrels a day. Even worse, this reduction came at a time when unemployment and idle factories brought on by the oil price collapse had begun to affect other sectors, like existing homes sales. As a result, economists predicted that the fires would further damage Alberta’s economy.
“The fires will create major distortions in the economic data over the second quarter, if not longer,” opined Frances Donald, an economist at Manulife Asset Management.
Regional Economy Remains Firm
There’s no doubt that both the fires, and the drop in oil prices, have hurt the economy. But, the fact is that oil production accounts for only 7 percent of Alberta’s economy. The construction sector, which employs almost twice as many workers, has remained profitable through several economic downturns. This strength is one of the main reasons that unemployment in Wild Rose Country is still below the national average. Long term projects that involve heavy construction are often planned and funded months or years in advance, making this sector more immune to sudden economic dips. On top of that, recent funding has helped keep construction projects afloat and has increased the rate of new projects.
There is more good news as well:
A low dollar has increased tourism (the Calgary Zoo is in the midst of a record year),
Alberta’s economy is on the verge of diversifying, and
The technology sector is on the rise.
Long Term Outlook
In addition to energy, many other economic weak spots, such as exports and residential investment, are in nonessential areas. Instead, most economists predict slight growth for the remainder of 2016, fueled in part by solid growth in the construction sector. Moreover, despite the wildfires, crude oil production should increase significantly, to roughly 2.56 million barrels per day. Looking slightly further ahead to 2017, even more growth is forecast as energy prices stabilize and other sectors reap the benefits of this improvement.
Here’s a quick snapshot an RBC economist report: