Four things we should be thinking about in 2018

Alberta’s rebound can still be derailed, write Todd Hirsch and Rob Roach.

If we think of annual economic growth in Canada as an ongoing foot race, Alberta’s economy was out with an injury in 2015 and 2016. Plummeting prices hamstrung the oilpatch and the economy shrank two years in a row.

Higher oil prices and a more efficient oilpatch saw Alberta start running forward again in 2017 and the province is expected to lead all provinces in economic growth this year and next.

With this year’s race about to end and next year’s about to start, it’s useful to take a look at four economic stories that have affected Alberta’s pace in 2017 and will continue to do so in 2018. 1.

The first story is free trade. Alberta performs well in a free trade environment, so it was welcome news when the Canada-European Union Comprehensive Economic and Trade Agreement came into effect on Sept. 21.

This victory for freer trade has, however, been overshadowed by the uncertain fate of NAFTA, the imposition of tariffs on Canadian lumber by the U.S. in the absence of a new agreement and the failure of the federal government to close a deal on the Trans-Pacific Partnership.

All of these agreements are important, but if NAFTA is “torn up,” as President Donald Trump has threatened, the negative economic effects could be severe and longlasting. 2.

The second story is pipeline capacity. As noted, higher oil prices have helped lift the province out its economic slump, but there have been mixed results on getting the pipes in the ground that will ensure the efficient delivery of Alberta’s most important product to multiple markets.

There has been some progress toward increasing pipeline capacity to the U.S., with construction of the Line 3 replacement pipeline underway and the Keystone XL pipeline lurching toward becoming a reality.

Getting oil to Asian markets via the B.C. coast remains a key challenge. The federal government approved the twinning of the Trans Mountain pipeline between Edmonton and Burnaby in late 2016, but the project continues to stir up opposition. On Dec. 7, the National Energy Board ruled in favour of the Trans Mountain project in its dispute with the City of Burnaby.

Fortunately, oil from Alberta is still in demand in the U.S., but growth is limited by the fact that oil consumption in the U.S. is expected to flatten over time.

Demand in Asia, however, is projected to significantly increase, so it makes sense to have access to this market. A larger list of potential customers would also help Alberta get a better price for its oil. 3.

The third story is unemployment. The oil price slump and subsequent recession caused unemployment in Alberta to rise in 2015 and 2016. The unemployment rate peaked in November 2016 at nine per cent, but has not returned to pre-recession levels.

The unemployment rate will likely stay unusually high for the next two years, barring a highly unexpected oil boom. 4.

The fourth story is household debt. Not all household debt is bad, but the fact that it has been rising in Alberta (which already has the highest average level of non-mortgage household debt in the country, according to Equifax) is a cause for concern.

With the unemployment rate expected to stay stubbornly high in Alberta and a good chance that the Bank of Canada will raise interest rates again next year, the ability of many Albertans to stay ahead of their debt will be tested.

The good news is that the return to economic growth and relatively high average incomes in our province will help offset any interest rate increases.

Still, debt management and repayment will be priorities for many Albertans in 2018 and beyond.

There are many economic factors that will form either a headwind or tailwind for Alberta’s economic growth next year, including oil prices, the U.S. economy, and the performance of sectors such as agriculture, manufacturing and tourism. With that said, free trade, pipelines, unemployment and household debt will be particularly important stories to watch in 2018.