Alberta surges ahead

On average, economists are forecasting a rise in real gross domestic product (GDP) of 3.5% in 2014 for Alberta, representing a modest increase from the estimated 3.3% rise in real GDP projected for 2013.

Despite the influx of workers into Alberta, the unemployment rate for the province stood at a healthy 4.8% as of the end of December, which compares favourably to the national unemployment rate of 7.2%.

“The unemployment figure is exactly in the 4.5-5% range – where you would want it to be – and it’s been there consistently for the past year or two,” says Todd Hirsch, an economist with Edmonton-based Crown corporation Alberta Treasury Branches (a.k.a. ATB Financial). “Labour shortages in the province, apart from those in certain highly skilled sectors, have not been as severe as those in 2006 – and that’s a positive thing.”

Investment continues to flow into Alberta’s oilsands projects at a fairly steady pace, with oil production levels remaining high. “It’s been almost ‘pedal to the metal’ in Fort McMurray,” Hirsch says. “There’s been maybe some well-needed moderation – a little cooling off – but nothing you would call a ‘downturn’.”

The oil industry as a whole continued to prosper in 2013, with world demand for crude keeping prices in the US$90-U$105 range for West Texas intermediate (WTI). However, the price that producers receive on Alberta crude, known as Western Canada Select (WCS), remained volatile last year, with its discount to WTI fluctuating from as little as a US$10 to as much as US$40. (WCS is harder to refine; this fact, combined with the lack of refining capacity in the U.S. and the occasional bottlenecks in pipeline capacity to the U.S., gives rise to the discount.)

Most economists project that oil prices will stay relatively steady in 2014 and 2015, with the possibility of a modest decline from current levels. Any deeper or more significant drop in the price of oil could result in oilsands projects in Alberta being downsized or delayed. In fact, a number of energy companies have tried to cut costs, including announcing layoffs, over the past year.

“If oil prices fell by $10 or $20 and they stayed there for a while, there wouldn’t be too much of a cushion there,” Hirsch says. “I get the sense there will be more mergers and acquisitions activity in 2014 [in the energy sector]. And any time there’s M&A activity, that usually results in layoffs in those better-paying, management-level jobs.”

There’s cautious optimism that one or more of five major – and heavily debated – proposed pipeline projects being discussed will finally get the go-ahead. These include TransCanada Pipelines Ltd.’s Keystone XL project, which would transport Alberta crude to refineries in the U.S., and Enbridge Inc.’s Northern Gateway project, which would move oil from Edmonton to Kitimat, B.C.

“I wouldn’t want to put a whole lot of money on any one project [being approved],” Hirsch says. “But there is a sense that in some way, shape or form, we will find pipeline capacity to get the oil out of the province. I think the sector is feeling more confident than it was a year ago.”

Natural gas prices have been low for several years, resulting in very little gas-related activity in the province. “The energy sector has adjusted to the new reality,” Hirsch says.

Next: A look at non-energy sectors
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A look at non-energy sectors

Other non-energy sectors of the provincial economy continue to thrive, however.

The residential real estate industry is expected to remain healthy in 2014 with prices continuing to rise modestly, with migration into the province absorbing new supply as it comes onto the market.

“The housing market is a lot more balanced than in other areas in Canada,” Bendiner says. “We expect to see growth in housing starts in 2014. And, in terms of resale market, we see that outperforming the national average as well, both in terms of price and number of sales.”

The commercial real estate market is also in good shape, although 2014 may see some cooling off, Hirsch says, noting that vacancy rates in Calgary recently reached 9%, compared with 2%-3% a year ago. “There are all these office towers sprouting up,” he says. “And they’re not going to stop these projects, so that’s going to put more product on the market.”

The province’s agriculture sector boomed in 2013, with a record number of farm cash receipts, mostly due to increased yields.

“Agriculture is one of the fastest-growing sectors in the province,” Hirsch says. “Just about everywhere in Alberta, the growing conditions were perfect [last year], resulting in bumper crops they hadn’t seen before.”

Forestry, a relatively minor industry for the province, held its own in 2013 as lumber prices stabilized.

“A lot of how [forestry] does depends on exports to the U.S.,” Hirsch says. “Selling lumber with the Canadian dollar at US92¢ or US93¢ really helps out.”

The strength in Alberta’s economy gave a welcome boost to its fiscal health. Although the provincial government has billions socked away in contingency funds, it also had been running significant deficits for the past few years.

In 2013, income and corporate tax revenue rose sharply, and higher oil prices also have meant higher royalty revenue for the province.

In addition, public-sector spending increased less quickly last year than in previous years after the government made several cuts. However, on the negative side, the province is expected to have spent about $1 billion so far in recovery costs from this past summer’s catastrophic flooding in several urban centres.

“The quarterly budget updates have been indicating that the deficits are not going to be that large,” Hirsch says. “My guess for 2014-15 is [the provincial government] will project a more or less balanced budget. It may report a slim deficit, but things have moved back in a positive direction.”

Alberta

Population: 4,025,074

GDP 2012 ($bil.): 311.9

GDP % change: +4.6

2013-14 deficit ($mil.): 250

Estimated net financial assets ($bil.): 19.2

Median after-tax income, all families: $63,100

Household disposable income/capita: $38,761

Figures are from latest available reports/estimates

Sources: conference board of canada;

Government reports

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