“Mandated oil production curtailment so far this year has yielded stronger bitumen prices. However, the blow to overall confidence from last year’s price slide as well as persistent uncertainty around medium-term energy investment prospects has been larger than we had predicted in December,” said the report.
It is forecasting the economy in Alberta to grow by only 0.5 per cent this year compared with 2.1 per cent in 2018, before rebounding to 2.4 per cent growth in 2020.
Employment will also be sluggish with only 0.1 per cent growth this year and 1.3 per cent next year compared with 1.9 per cent in 2018.
And TD Economics forecasts the province’s unemployment rate to rise from 6.6 per cent last year to 7.1 per cent this year then drop back down to 6.8 per cent in 2020.
“Alberta’s recovery from the 2014-15 oil shock has suffered a setback.Restraints on oil production, a soft capital spending outlook and a deteriorating domestic spending picture have led us to slash the province’s 2019 growth outlook to 0.5 per cent,” said TD Economics. “A continued rebalancing in oil markets points to a pickup in the pace of expansion in 2020, but the rebound is expected to be somewhat modest.
“On the positive side,the government’s oil curtailment plan appears to have delivered on its intended effects, as inventories have improved and oil prices rebounded. Nevertheless, oil transportation constraints remain a medium-term challenge. Adding insult to injury, Enbridge announced this month that the completion of its Line 3 expansion, which had been expected to start operations by the end of 2019, has been delayed until 2020H2. This uncertainty is leaving its mark on other areas of the economy. Employment growth in the province has slowed to a crawl in recent months, leaving the unemployment rate at 7.3 per cent, the highest outside of the Atlantic region. At the same time, a recent upward trend in debt-servicing costs is putting a further damper on consumer confidence and spending, especially with Alberta’s households being the most highly indebted.”
Despite the challenges, TD Economics said the recent 2019 Capital Repair and Expenditures Survey showed a strong increase in manufacturing investment intentions, led by chemicals manufacturing.
“The province’s Petrochemical Diversification Plan has also resulted in final investment decisions for large capital projects, which should provide a boost to both non-residential construction and manufacturing activity.
Meanwhile, the Alberta government’s third quarter fiscal update encouragingly showed a lower than expected deficit for FY2018-19. Nevertheless, the deteriorating economic outlook for 2019 represents a key risk to both further near-term progress in deficit reduction and to meeting its zero deficit target by FY2023-24,” it said.
Mario Toneguzzi is a Troy Media business reporter based in Calgary. He writes for Calgary’s Business.