Alberta’s economic growth exceeded expectations in the first half of 2017. Nearly every sector of the Alberta economy is rebounding, spurring recovery in exports and manufacturing and adding 17,000 jobs since January.
The Alberta Activity Index, a composite indicator of economic activity, is up 4.9 per cent year-to-date 9 (Figure 1).
Reflecting the strength of the first half of 2017, real GDP is now expected to grow by 3.1 per cent in 2017, up from 2.6 per cent growth forecast in Budget 2017.
Despite the improved economic outlook, the lingering effects of the two-year downturn continue to dampen corporate profits, household incomes and government revenue.
Energy prices lower
Oil prices have not met expectations due to various factors. This has led to a revision in the 2017-18 WTI forecast to $ 49 USD per barrel, down $6 from budget.
Also, the forecast for the WTI-WCS differential in 2017-18 has been revised down, as pipeline capacity is expected to become limited towards the end of 2017. Rising oil sands production is expected to cause the differential to widen, with the differential forecast down to $3.80 USD per barrel from Budget 2017 to $12.20 USD per barrel.
Lower prices weigh on profits
The increase in economic activity in the province will help corporate profits rebound in 2017 after a dramatic decline in 2015 and 2016; however, lower oil prices have resulted in a more muted rebound than was expected in Budget 2017.
The recent appreciation of the Canadian dollar has also negatively impacted profits and export revenues. The Canadian dollar is now expected to average 0.77 US per CDN dollar in 2017-18, up a full cent (USD) from Budget 2017.
Oil and gas sector fuels recovery
Drilling activity has been strong in 2017. Both the rig count and the number of metres drilled have doubled from last year's levels. As a result, conventional oil and gas investment is expected to rise by 40 per cent in 2017.
This is partly offset by a larger-than-expected contraction in non-conventional investment, which is now forecast to decline by 14 per cent. Non-residential investment outside the oil and gas sector has also continued to decrease.
Business output rebounds
Exports and manufacturing sales have surged since bottoming out in late 2016, with both recovering over half the value lost during the downturn (Figure 2). Strong sales in food and wood products manufacturing helped sustain the recovery in the first half of 2017. Real exports are expected to grow by 5.8 per cent in 2017 and 4.2 per cent in 2018.
Labour market improves
The recovery in Alberta employment levels has been stronger than expected. Since hitting bottom in July 2016, the Alberta economy has added 34,500 jobs—half of which were gained in 2017.
At the same time, there has been a shift from part-time to full-time employment. This is another indication that underlying labour market conditions are improving in Alberta. Employment is forecast to grow by 1.3 per cent in 2017 and 1.6 per cent in 2018 (Figure 3), up from the Budget 2017 forecast of 0.9 per cent and 1.4 per cent respectively.
The unemployment rate has fallen 1.2 percentage points since reaching a 20-year high in November 2016, aided by stronger employment growth. Reflecting this improvement, the unemployment rate forecast has been lowered to 7.8 per cent in 2017 and 7.3 per cent in 2018.
Slower earnings recovery
A recovering labour market has not yet translated into a significant improvement in average weekly earnings (AWE), which have essentially remained at 2016 levels. Due to current trends, the forecast for AWE growth in 2017 has been decreased by 0.4 percentage points, to 1.0 per cent. The 2018 forecast is unchanged from Budget 2017 at 2.0 per cent.
Housing market strengthens
Residential investment has improved in the province, despite inventories of new and unsold homes remaining high. Single-unit housing starts have picked up and multi-unit construction has stabilized. In addition, rebuilding in Fort McMurray has proceeded faster than expected. Consequently, the forecast for housing starts has been increased from 24,500 to 27,100 for 2017.
Updated economic and energy price assumptions
|Fiscal Year||2016-17 Actual||2017-18, 3 Month Actual||2017-18 Budget||2017-18 1st Quarter|
|WTI Oil Price (US$/Barrel)||47.93||48.29||55.00||49.00|
|Light Heavy Differential (US$/Barrel)||13.93||11.13||16.00||12.20|
|Natural Gas (Alberta Reference Price Cdn$/GJ)||2.01||2.40||2.90||2.60|
|Exchange Rate (US cents/Cdn$)||76.2||74.4||76.0||77.0|
|Calendar Year||2016||2017 Forecast||2018 Forecast|
|Economic Growth (% change in Real GDP)||-3.5*||3.1||2.3|
|Employment (% change)||-1.6||1.3||1.6|
|Unemployment Rate (%)||8.1||7.8||7.3|
For more information, read: 2017-18 First Quarter Economic Outlook(1.2 MB)