Forecast of Alberta’s Economy Going into 2017
Alberta’s economy has been in a tailspin since 2014 when the price of oil crashed. The Fort McMurray fires further contributed to the economic decline. Uncertainty remains about the future of oil prices and global economic conditions; the outcomes are difficult to predict. Some financial experts believe 2017 will be the year of recovery for Alberta while others believe growth and recovery may take longer.
Financial experts at TD Bank anticipate oil related investments to stabilize with oil prices reaching a point above $50 per barrel. Global oil market rebalancing has started however crude inventories remain high. Uncertainty about demand and the timing of market rebalancing are reflecting volatility in oil prices. Energy investment has weakened due to this volatility and any rebound will be slow compared to past experiences.
Outside of the energy sector, investments have also been affected by declining commercial and industrial spending. The past two years have shown a decline in business activity, however, it appears as though it’s starting to stabilize. Bitumen production appears to have recovered from the outages from the Fort McMurray wildfires and manufacturing outputs are expected to pick up with a 4% recovery being expected in 2017.
- The labor market deteriorated in the first half of 2016. Employment fell nearly 38,000 between December 2015 and July 2016 with job losses increasing in the second quarter. More recently, between July and October, employment has started to improve with 25,000 jobs being added mostly in the private sector. Employment is expected to continue improving in 2017 and should expand by 1.2%.
- Alberta has the highest hourly wage rate among the provinces, however, sustained economic weakness has seen a decline in total earnings. Reductions in overtime, declining full-time employment and gains in part-time employment have affected the number of average weekly hours worked. As a result, average weekly earnings have fallen and primary household income has been affected. A small rebound is forecast for 2017 and growth will likely be around 2.4%.
- The housing market is expected to exhibit more signs of stability. Housing sales of existing homes have remained well below pre-recession levels and vacancy rates have gone up. It is anticipated that in 2017, there will be a higher than expected increase in housing starts and existing home sales, partly due to reconstruction activity in Fort McMurray.
Risks to the Alberta economy are still elevated, however, it is predicted that the GDP growth should top 2%. If global growth is weak, or if OPEC fails to reach an agreement to freeze output, the Alberta market could be affected and economic recovery would be slower than expected. On the positive side, higher than expected growth in the US or easing pipeline constraints could significantly improve Alberta’s prospects. Decisions that Donald Trump makes as President are likely to affect the Alberta economy in some fashion. At this point in time, we can only wait to see what those decisions will be.