Author: Brett Gartner
After spending a few years in the fast lane, Alberta’s economy changed lanes last year and recorded a slower rate of economic growth. There has been a considerable gap in recent years between Alberta’s economic performance and that of the national economy. In 2004 and 2005, Alberta’s real economic growth was above 5%—more than two percentage points higher than national figures. The gap turned into a chasm in 2006, when Alberta’s real economic growth hit 6.6%. This was roughly three times higher than the rest of Canada—the nation with Alberta factored out.
Growth slowed last year, but the provincial economy did not take its foot off the gas and slam on the brake. Real GDP expanded by 3.3% in 2007, on par with the average rate of growth for Alberta since the early 1980s, and above last year’s national average. Without a doubt, some aspects of the economy have cooled off. The rate of growth of retail sales has definitely moderated over the past 12 months, but Albertans continue to spend money. The rate of increase in housing prices slowed considerably and housing starts are down, but the floor has not fallen out of the market. Employment growth has slowed, but it certainly hasn’t stalled—far from it. The most recent figures show that Alberta continues to lead the country in job creation.
Some segments of the economy—notably the important conventional oil and gas sector—slowed down more than others. The high price of crude oil and massive development in the oil sands contrasts with a marked decline in natural gas drilling activity. Until recently, the price of natural gas was depressed. Furthermore, the industry has struggled with high costs, the strong dollar, and uncertainty surrounding the Alberta government’s royalty review. Fortunately, the conventional oil and gas sector is not as pessimistic as we approach the summer of 2008 as it was in late 2007 and early 2008. Some within the industry have regained some optimism, however cautious.
The Canada West Foundation expects Alberta to outperform the national economy this year and next. Alberta, however, will not be the top performing province in 2008. And in a time of national and global economic uncertainties, there is no shortage of downside risks to the forecast for the province. The US—the biggest market for Alberta’s exports by far—is currently facing tough times. Slower global economic growth has the potential to bring oil prices down. Natural gas prices are currently favourable, but there is no guarantee they will stay that way given their volatility. Labour shortages and cost pressures—perennial concerns in Alberta—have the potential to reduce economic growth.
Notwithstanding the downside risks, the Alberta economy, by and large, remains on stable footing. The Canada West Foundation is forecasting real GDP growth of 3.1% for 2008 and 3.2% for 2009.