Alberta’s economy is gaining traction, but the provincial growth outlook will remain constrained over the medium term by a number of influences, including a tepid outlook for oil and gas investment, as well as likely provincial budget restraint, says a report released on Tuesday by TD Economics.
Recently, TD projected annual economic growth of 0.5 per cent this year for the province, followed by 2.1 per cent next year.
“While it is early, encouraging data released in recent weeks covering both the business and household sectors reinforce our view that Alberta’s economy resumed expanding in quarter two, after a very soft start to year,” said the report. “Moreover, it suggests the balance of risks around economic growth this year is tilted to the upside.
“Encouragingly, green shoots have started to appear in the data, spanning both consumer and business sectors. These trends have reinforced our expectation that growth in the province resumed in quarter two of this year. It remains early days, but any persistence in this firmer data flow would likely set the stage for an upgrade in our view at the time of our next update in September.”
TD Economics said business activity and confidence is picking up in Alberta.
“For sure, not all is rosy. But sustained higher heavy oil prices since the start of the year and an easing in the mandated curtailment plan have been starting to feed through to business indicators,” it said.
“Provincial GDP data is not timely, but much can be learned from the latest Canadian monthly GDP data. Corresponding with an easing in oil production limits, the ‘non-conventional oil extraction’ category saw two consecutive months of solid increases following four consecutive months of declines. The ‘support activities for mining and oil and gas extraction’ category continues to lag behind, but finally edged higher in April following a string of outsized declines since late 2018.”
It said reductions in petroleum production contributed to the province’s woes in late 2018 and early 2019. However, Alberta’s wholesale and manufacturing shipments appear to be bouncing back with some punch, as the province recorded substantial increases in both March and April.
“Although a good part of this rebound can be chalked up to recovering oil and gas production and prices, other areas have also come alive in recent months, including food products and some durables,” said the report.
“Alberta’s exports have been accelerating in recent months and are now up a healthy 4.5 per cent YTD relative to the same period in 2018. While growth in the headline number has been supported by higher oil prices, heavy oil export volumes have been recovering over the past few months in line with output. Notably, a slump in crude-by-rail shipments in February coincided with a sudden drop in oil exports volumes. Recently, however, barrels shipped by rail have been on an upward trend again, reaching 236,000 (bbl/day) in April. Given that these levels still remain below their December highs, we see room for further increases, especially if WCS discounts widen closer to US$15 toUS$20 as we expect.”
TD Economics also said Alberta’s small business confidence, as measured by the Canadian Federation of Independent Business and its regular Business Barometer, has been on a firming path recently. The index has increased for five consecutive months.
“Even more encouraging signs have come on the household side. While year-to-date movements are still soft, momentum has picked up across a range of indicators. Continued improvements in labour market and demographic indicators should help maintain this momentum going forward,” it said.
Mario Toneguzzi is a Troy Media business reporter based in Calgary.