Despite its troubles, Alberta’s economy will lead the country

Pipeline gridlock and unresolved NAFTA talks are affecting investor confidence and creating uncertainty, but the impact should only be temporary as these issues are sorted out, predicts the head of BMO Financial Group.

Despite these two ominous clouds hanging over the scene, the economic outlook for Calgary and Alberta should be strong through 2019, with the province projected to lead the country in growth next year, according to bank CEO Darryl White. “I would say we are really net bullish as we go forward on the Alberta economy,” said White, who became the bank’s chief executive last November. “When I sit here today in Calgary and look out at the opportunities … we see (them) occurring in the strongest-growth economy in the country as we look forward in the next 12 to 18 months.”

According to the latest BMO forecast, Alberta’s economy will grow by about 2.4 per cent this year — second in the country — and expand by 2.5 per cent in 2019, “with the recent run in oil prices providing an income boost.”

The bank projects oil markets will stay relatively stable throughout next year and benchmark West Texas Intermediate crude will average US$65 a barrel.

Alberta has seen its unemployment rate moderate slowly from recessionary highs and the jobless rate is projected to keep dropping to around 5.8 per cent next year, White said in an interview.

But where will growth come from amid flat oilpatch spending and other sectors, such as commercial real estate and housing, still under pressure?

The energy industry makes up about 25 per cent of the provincial GDP, but White said other areas, including agriculture, the knowledge-based sector, and acquisition financing are particularly active.

In response, the bank expects to increase employment in its own business banking group in province by 13 per cent this fall.

The news comes during a volatile period for the city and provincial economy.

The jobless rate in Calgary remains high and some layoffs — such as 230 jobs cut at Crescent Point Energy last week — are still occurring in pockets of the oilpatch.

Alberta added more than 16,000 new jobs in August, mainly full-time positions, although the city’s unemployment rate bumped up to 8.2 per cent.

“The story of Calgary’s struggle is well documented. I think the story that is not as well document is … 2019 is probably the year where we can say the province of Alberta has turned the corner, well and truly,” White said.

Others in the business community are also confident the 2019 outlook looks promising, even with external issues causing grief.

“I see momentum,” said Calgary Chamber of Commerce CEO Sandip Lalli. “If we can get deals moving, then the economy is moving forward. There’s definitely a lot of deals on books.”

Yet, a couple of wild cards loom. Free trade negotiations with the unpredictable Trump administration continue to drag on, amid threats of auto tariffs from the U.S. side.

Meanwhile, the recent legal delay to the Trans Mountain pipeline expansion is eroding confidence in the country’s ability to get much-needed energy infrastructure built, while the transportation bottleneck is affecting the price for Western Canadian heavy crude.

“Right now, what you’ve got is an overhang in Canada where investors will say (there are) great projects over the long run, stable environment, rule of law … but right here, right now, not sure we can rely on the stability of decisioning from the perspective of governments, and we don’t know what the NAFTA implications are going to be,” White said.

“I think it’s temporary. So I would temper that concern by saying, of course it undermines investor confidence but it is temporary because the court’s decision is very likely to result in a delay of the construction, not an end to the construction.”

Alberta business and political leaders certainly hope that’s the case, but given the past failures of Energy East and Northern Gateway, it’s not an ironclad lock that Trans Mountain will be built. Premier Rachel Notley said Monday the lack of adequate pipeline capacity is costing Canada’s economy about

$40 million a day, or roughly $30,000 every single minute.

At the official opening of Suncor Energy’s Fort Hills oilsands mine, CEO Steve Williams expressed disappointment in last month’s court ruling that quashed Ottawa’s approval of the Trans Mountain expansion, although he believes the development will eventually be built.

“It’s very difficult for us to approve these next-step major investments until we get a clearer position on pipelines,” he told reporters.

“It does put a damper on the industry. It’s very difficult if you’re trying to build a case for a new business when you can’t have a degree of confidence that if you go through all of the appropriate stages, you still don’t get approval.”

From a banker’s perspective, White said NAFTA and the pipeline issue might cause some tapping of the brakes on investment spending for a few months.

The energy sector is seeing stabilized crude prices and “we are in the very late innings of the restructuring ” of the oilpatch. However, it will likely take until 2019 until the industry can tap into external capital sources, he said. As for NAFTA, negotiations between Canada and the U.S. are slated to resume Tuesday.

White is confident any outstanding issues will be resolved because a trade agreement simply makes sense for all sides.