Al­berta’s econ­omy will lead coun­try next year, says BMO ex­ec­u­tive

Calgary Herald - - FRONT PAGE - CHRIS VARCOE

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 doc­u­ment. 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.”

WILDCARDS

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 courts 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 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, with the two sides talk­ing about the Chap­ter 19 dis­pute res­o­lu­tion mech­a­nism and Canada’s dairy sup­ply man­age­ment sys­tem.

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

“When you look at the logic, I’m a fun­da­men­tal be­liever we’ll get to an answer that says we’re go­ing to pre­vail and have a deal on NAFTA,” he con­cluded.

“And I be­lieve we’ll have a deal on NAFTA by Oct. 1.”

Darryl White

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