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Deficit steady, economy shows signs of stability

Alberta’s deficit is forecast to hold steady while a number of indicators point to a stabilization of the province’s economy.

The 2016-17 deficit is forecast to be $10.8 billion, a $78-million decrease since the first quarter, as reported in the Second Quarter Fiscal Update and Economic Statement. The deficit is $449 million higher than estimated at budget, due to the impact of the Wood Buffalo wildfire and other factors.

Despite ongoing challenges and high unemployment, there are some hopeful signs for Alberta’s economy. The province added 25,000 jobs in the last three months, manufacturing shipments have increased in recent months, the value of Alberta’s exports has increased since April and drilling activity is picking up from its lows.

“While it’s too soon to say Alberta’s economy turned a corner, there are some hopeful signs that it’s stabilizing. We are keeping a steady hand on the tiller and sticking to our approach of controlling spending, protecting critical public services, and supporting job growth and the diversification of our economy.”

Joe Ceci, President of Treasury Board, Minister of Finance

The government is maintaining the forecast West Texas Intermediate (WTI) oil price at US$45/bbl, the same as at first quarter, but US$3 higher than estimated at budget. Government is also retaining the full $700-million risk adjustment to account for uncertainty in the global energy market.

Forecast revenue is up $1.3 billion from Budget 2016, primarily due to increased non-renewable resource revenue, federal transfers and investment income.

Operating expense has increased by a net total of $556 million from budget. This includes a second quarter increase of $100 million to address higher caseloads for Income Support, Assured Income for the Severely Handicapped and other support programs.

Following two years of contraction, Alberta’s economy is expected to grow by 2.3 per cent in 2017, supported by wildfire reconstruction, a rebound in oil production, additional investments in public-sector infrastructure and a modest improvement in oil prices.

2016-17 Second quarter forecast ($ millions)

Full-year forecast

Budget 2016-17

Q2 forecast

Change from Budget

Income taxes

$15,730

$15,027

$(703)

Non-renewable resource revenue

1,364

2,124

760

Other revenue

24,341

25,547

1,206

Total revenue

41,435

42,698

1,263

Operating expense (net of in-year savings)

44,094

44,650

556

Disaster/emergency assistance expense

246

1,276

1,030

Other expense

6,757

6,883

126

Total expense

51,097

52,809

1,712

Risk adjustment

(700)

(700)

-

Deficit

$(10,362)

$(10,811)

$(449)

Energy and economic assumptions

Energy and economic assumptions

Budget 2016

Q2 forecast

Change from Budget

WTI (US$/bbl) *

42

45

3

Exchange rate (US¢/Cdn$)*

73.5

77.0

3.5

Real GDP growth (%)**

-1.4

-2.8

-1.4

Unemployment rate (%)**

8

8

-

*2016-17 fiscal year
**2016 calendar year

6-Month Actuals ($ millions)

April 1 to September 30

Budget

Actuals

Change from Budget

Revenue

$20,506

$22,109

$1,603

Expense

25,939

26,987

1,048

Deficit

$(5,433)

$(4,878)

$555


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