Worst of downturn is ‘over’ for Alberta
Price of oil forecast to rebound, but recovery expected to be slow
The worst of the oil price downturn is over, but economic growth in 2017 and beyond will be slower than what Albertans have been used to, two well-known Canadian economists said Tuesday.
Speaking at Calgary Economic Development’s 2017 Economic Outlook luncheon, Conference Board of Canada senior fellow Glen Hodgson and ATB Financial chief economist Todd Hirsch said that after two straight years of economic contraction, Alberta’s GDP will likely grow between two and 2.5 per cent next year.
“We think we’re now at a point where recovery is possible for Alberta,” said Hodgson, who is forecasting the WTI benchmark oil price to average about $45 a barrel in 2017 and climb to between $60 and $65 a barrel by 2019.
Hodgson, who was one of the first economists to predict a recession in Alberta two years ago, said modest but extended oil price gains — combined with economic growth south of the border and the stimulus effect of government infrastructure spending here at home — should help the province’s economy round the corner in the early part of 2017. “The worst is over,” he said. Still, the recovery that does occur will feel very different than the economy of a few years ago, when Alberta’s GDP was growing at between four and 4.5 per cent annually. Hodgson predicted business investment will remain very weak in 2017, with the bulk of economic growth being driven by public sector spending.
“Alberta had an incredible period, where oil prices were at $100 or more,” he said.
“Everybody was doing their very best to invest in the province and that’s clearly been tempered.”
Even if oil prices went back to $70, that’s a different environment for business.”
While Hodgson was hopeful the province will see a small rebound on the jobs front in 2017, Hirsch took a more pessimistic view — saying it may take a while before companies affected by the oil price downturn start hiring again.
Calgary’s unemployment rate hit 10.2 per cent last month, up from 4.3 per cent just two years ago.
“I think we’ve seen the worst of the oil price downturn, but I don’t actually think we’ve seen the worst in the labour market,” Hirsch said.
“I think Albertans need to sort of brace themselves for some tough months ahead on the labour market. We’re not going to see an immediate rebound in terms of jobs.”
In her own address to the crowd, Calgary Economic Development CEO Mary Moran acknowledged the pain the recession has brought to many Albertans, but said her organization is seeing signs of recovery.
She said CED currently has almost 100 “active files” of companies, large and small, that are looking to set up shop in Calgary.
Some of these, she said, are established companies with headquarters elsewhere who are interested in relocating to Calgary to take advantage of the high office vacancy rates and the city’s highly skilled labour force.
On Monday, Dominion Diamond Co. said it would move its corporate head office from Yellowknife to Calgary, and Moran said she is aware of two more companies that have made firm commitments.
“I can’t talk about them right now because they remain confidential, but both of those deals are signed,” she said.
Here’s an idea that might not win many friends in Alberta’s capital, but is worthy of consideration.
The province should prioritize its capital spending in the upcoming months, targeting the hardest-hit areas of Alberta that need help the most.
Today, that would mean Calgary.
“We need to reflect on the fact that Calgary is facing struggles that the rest of the province is not facing given the employment picture,” says Justin Smith, director of policy at the Calgary Chamber of Commerce.
“We need to get shovels in the ground, and I think Calgary should take priority in the establishment of a priority list when it comes to getting those infrastructure dollars.”
Smith’s point goes something like this.
While Alberta’s unemployment rate remained flat at 8.5 per cent last month and Edmonton’s fell to 6.9 per cent — after peaking earlier in the summer — the figures continued to rise in Calgary as more people searched for work.
In Cowtown, the unemployment figure hit 10.2 per cent in October — worst among the province’s largest cities — followed by the regional municipality of Wood Buffalo, with a rate of 9.5 per cent.
Medicine Hat had an unemployment figure of 8.8 per cent last month, Red Deer sat at 7.9 per cent, while Lethbridge’s rate was six per cent.
Back in February 2015, when the recession was just underway, both Calgary and Edmonton — and the province overall — posted an unemployment rate of five per cent.
By last month, there was a 3.3-percentage point gap between the capital and Calgary.
Economist Trevor Tombe at the University of Calgary said job losses in the natural resources sector have been particularly concentrated in support activities, such as positions tied to exploration, drilling and other head office functions.
This exploration work is directly connected to oil and gas investment, which has fallen sharply as commodity prices have tanked during the past two years.
In Edmonton, there is a large public service component with government positions in the capital, providing a bulwark to job losses seen in the private sector.
Now, all of this doesn’t mean money needs to be diverted away from other areas to help Calgary — Fort McMurray’s needs are clearly pressing after the wildfires — only that planned capital spending could be expedited here.
The province is already in the middle of an aggressive $34.8-billion capital infrastructure program, one it insists will help stimulate the economy and sustain employment.
And Smith isn’t the only one advocating the idea of prioritizing capital spending.
Alberta Party Leader Greg Clark, MLA for Calgary-Elbow, said the unemployment situation is a “crisis” in the city the NDP government must address.
“Create jobs where jobs are needed,” he said. “The numbers don’t lie.”
Mary Moran, CEO of the Calgary Economic Development, agrees it’s an idea worth examining given the labour situation in the city, as well as a downtown office vacancy rate approaching 25 per cent.
She stresses it’s also important all levels of government are aligned, working together on capital spending initiatives so jobs are created swiftly.
“I think they have to look at indicators like unemployment to make decisions on where investment should go. … It’s apparent that we have a much worse labour issue,” Moran said Tuesday at CED’s 2017 Economic Outlook luncheon.
Such a conversation may not be well received in other parts of the province. The recession is hammering communities across Alberta.
The Notley government has also begun spending significant money in Calgary with the $2.2-billion southwest ring road, while planning is underway on a billion-dollar-plus Calgary cancer centre.
But other projects are waiting for approval.
The biggest one — the Green Line LRT project, with a whopping $4.5-billion to $5-billion price tag — hasn’t seen a commitment yet from the province, despite having secured municipal and federal support.
Mayor Naheed Nenshi won’t get into arguing for one community getting provincial money over another, saying only that Calgary needs to be treated fairly.
Yet he quickly notes the province recently announced it will help fund the overhaul of Edmonton’s Yellowhead Trail.
“In fact, we’ve seen very, very few announcements on Calgaryspecific stuff, beyond the Calgary southwest ring road,” the mayor said Tuesday. “It’s really time to move those things forward.”
At the legislature, Infrastructure Minister Brian Mason insists the province is spending a substantial amount of money in Calgary and that will continue.
He’s planning to travel to Calgary for a briefing with local transportation officials in the next couple of weeks on the Green Line. But in an interview, he noted “it’s really a lot of money” and the costs are moving up as planning continues.
On the broader question, Mason said he’s “not hostile to
I recognize Calgary is harder hit than other parts right now, so I’m prepared to look at it. But there will have to be some sort of balance reached.
the idea” of expediting investments in communities like Calgary with higher unemployment rates.
But the province must sort through the types of jobs that have been lost in the city and whether more capital spending will substantially tackle unemployment in areas such as professional management ranks or geologists.
“There are people in other parts of the province that are hurting as well,” he added.
“I recognize Calgary is harder hit than other parts right now, so I’m certainly prepared to look at it. I’m not ruling it out at all. But there will have to be some sort of balance reached.”
But in the city of Calgary, a balancing act may not be enough if conditions don’t improve soon.
The job scales are tipping, and for more than the one in 10 Calgarians now looking for work, it’s not in their favour.