Alberta will continue to reap the rewards of higher oil prices in 2011, economists say, with the anticipated rebound in activity in the oilpatch having a positive effect throughout the province\u2019s economy.
\u201cAt the levels they are now, commodities prices are strong enough to support continued investment,\u201d says Pascal Gauthier, a senior economist with Toronto-Dominion Bank<\/b> in Toronto. \u201cI wouldn\u2019t have any reason to doubt that investment will continue to creep up.\u201d
In general, economists are predicting growth in Alberta\u2019s real gross domestic product at a rate of about 3%-4% in 2011 \u2014 a full percentage point higher, on average, than most economists\u2019 expectations for real GDP growth for the nation overall.
There are dark spots, however. Stubbornly low natural gas prices will serve as a brake on Alberta\u2019s recovery overall, they say, as too much inventory in North America has been holding down both prices and investment activity. The real estate market also remains soft, and little growth in that sector is expected.
Alberta had experienced a slower recovery from the recent recession than did Ontario, Quebec and British Columbia, Gauthier suggests. But that trend is now reversing, with Alberta showing more robust GDP growth and the other big provinces starting to slacken.
\u201cIt takes a longer time for higher commodities prices to be reflected in higher investment,\u201d Gauthier says. \u201cTypically, you want to be certain that prices will be sustainably higher before you start investing again.\u201d
In mid-January, light sweet crude futures were trading at around US$90 a barrel, up from US$75 a year earlier. Most economists are calling for oil prices to move even higher this year. During the worst of the downturn, oil prices had plummeted, trading at less than US$35 a barrel at the lowest point, forcing many oil-related projects to halt.
In fact, Alberta began 2010 with its economy still under a cloud due to a rough 2009, a year in which the province\u2019s real GDP contracted by 4.5%. However, growth picked up in the second half of 2010 as activity in the oilpatch helped to drive business in other sectors.
Economists are expecting Alberta\u2019s real GDP growth for 2010 to come in at the 2.5%-3% range. Says Robert Kavcic, an economist with Bank of Montreal<\/b>\u2019s investment banking group in Toronto: \u201cIf you look at the last two quarters of last year, we saw activity in the energy sector heating up, job growth heating up, so the momentum in the province is pretty strong right now.\u201d
In the oilsands, investment activity was so strong in 2010 that some say boom-level growth has returned, if only for that sector in the province. Despite the history of controversy over the environmental aspects of the oilsands, foreign investment is now pouring into the region, most notably from China. \u201cIn terms of employment and investment dollars,\u201d says Todd Hirsch, an economist with ATB Financial<\/b> in Calgary, \u201cwe ended the year above where we were before the downturn.\u201d
The manufacturing sector, particularly as it relates to the energy sector, also has seen a spike in growth, not only in Alberta but throughout the country. \u201cThere\u2019s a lot of specialized equipment needed for these megaprojects,\u201d Hirsch says.
Due to the increased activity, unemployment in Alberta fell to 5.6% in December, down from 6.6% the year prior. With jobs increasing, most economists are looking for that rate to fall to 6% in 2011, which is nevertheless still above the rate posted during the height of the boom, when it reached a low of 3.5%-4%.
Lower unemployment levels mean greater public confidence in the economy, which is being reflected in consumer spending. Retail sales figures in November were up by 8.8% to $5.2 billion in Alberta, the biggest percentage increase among all provinces that month.
Headwinds still exist, however. Natural gas prices traditionally rise in tandem with oil prices, but new drilling technologies have allowed firms to tap previously hard to reach reserves in Canada and the U.S., creating an oversupply. In January, natural gas was trading at around US$4.50 per million British thermal units, com-pared with US$5.20 per
mmBtu a year earlier \u2014 and well off its high of more than US$12 per mmBtu in mid-2008.
The price of natural gas also has an effect on the Alberta government\u2019s royalty revenue. Although the fiscal situation in the province remains strong compared with Central Canada, Alberta is running a deficit, and its government is expected to make spending cuts this year.
However, Alberta still has massive cash reserves in contingency funds \u2014 $11 billion in the Sustainability Fund and $14 billion in the Heritage Fund \u2014 that it can put toward any shortfall.
Housing prices are expected to stay flat or rise modestly because of an oversupply from the boom era. The commercial real estate sector is also still weak, as projects started during the latter half of the past decade continue to come online.\tIE<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"
Alberta will continue to reap the rewards of higher oil prices in 2011, economists say, with the anticipated rebound in activity in the oilpatch having a positive effect throughout the province\u2019s economy.\u201cAt the levels they are now, commodities prices are strong enough to support continued investment,\u201d says Pascal Gauthier, a senior economist with Toronto-Dominion Bank […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3013,3130],"tags":[2552,3197],"yst_prominent_words":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/316799"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=316799"}],"version-history":[{"count":1,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/316799\/revisions"}],"predecessor-version":[{"id":362056,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/316799\/revisions\/362056"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=316799"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=316799"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=316799"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=316799"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}