Energy sector uncertainty continues to hamper Alberta’s economic prospects, says a new report by Scotiabank Economics which was released on Wednesday.
“Though government-mandated oil production cuts, put in place to allay the Western Canadian price discount, have been eased, we still expect the policy to shave at least one percentage point off of growth this year. Prices have risen since the cuts were announced, but Line 3 pipeline delays will likely weigh on differentials into 2020,” said the bank’s Provincial Outlook report.
The report said Alberta’s economic growth as 4.4 per cent in 2017 but dipped to an estimated 1.6 per cent in 2018. It’s forecast to fall to 1. 2 per cent growth this year but rebound with 2.5 per cent annual growth in 2020.
“Citing a weaker investment climate, the firm behind a $2.6 billion in situ oil sands project — which had been a bright spot in an otherwise sluggish investment landscape — scaled back development of the venture. We look for growth to rebound to about 2.5 per cent in 2020, but the viability of large energy sector projects — increasingly in question following oil price volatility and facing greater competition from the U.S. shale patch — will be critical to maintaining that rate thereafter,” said the report.
“Other investments should lend some support to growth during 2019-20. Work on three petrochemical facilities with a combined value of $10 billion is underway or approved under Alberta’s Petrochemicals Diversification Program. Calgary venture capital funding is estimated to have risen more than 20 per cent in 2018 to reach a six-year high, though it slowed substantially in the second half of last year.”
Scotiabank said a $360 million potato processing plant, construction of which began last year in Lethbridge, is scheduled to open in 2019 and will likely boost manufacturing sector output and exports.
“Like many centres in Canada’s net oil-producing provinces, Alberta cities are grappling with a housing inventory overhang accrued since the commodity price correction. In Calgary, per-capita completed and unabsorbed units sat more than 77 per cent higher than their long-run mean at the end of 2018. The figure was also elevated in Edmonton, and both cities’ rental vacancy rates exceeded six per cent in 2018, indicating a stock of rental units that well exceeds demand. Substantial increases in home prices and construction are not expected until this glut is absorbed — an event that will likely be prolonged with Alberta set to sustain a more muted expansion this year.”
– Mario Toneguzzi