State of the Industry: July 2018

Economic Indicators

Alberta’s economy continues to move in the right direction, albeit at a moderate pace – ATB is forecasting 2018 and 2019 provincial growth at 2.7% and 2.3% respectively.  However, current trade uncertainties and consumer confidence overburden projected growth.

The price gap between Western Canadian Select (WCS) and West Texas Intermediate (WTI) continues – WTI is averaging around $US 65 while WCS is at $US 47 per barrel. Costly delays to the Trans Mountain Pipeline are reinforcing this price gap and dampening Canadian energy investment. Natural gas prices also remain low due to a high level of inventories.

Non-residential construction is down 7.8% year over year from last year, being influenced by a lack of business confidence and persistent commercial and industrial real estate vacancies.

Troubled times

Alberta is the third largest exporter to the U.S. out of all the provinces with a 39% export to GDP ratio. Our number one export continues to be oil and natural gas, comprising almost 70% of total provincial exports.  The graph below indicates that future growth will be driven more by investment than exports (Government of Alberta: Economic Outlook).

State of the Industry Chart.jpg

Although energy has not been the target of the Trump Administration’s latest tariffs, it does not mean we are immune to any economic fall out resulting from protectionist policies.  Ontario and Quebec will be the hardest hit as producers of steel and aluminum in provinces more heavily reliant on manufacturing, but let’s not forget that steel is used extensively in the oil and gas sector and in building and infrastructure construction. Structural steel, HVAC, rebar, steel studs, metal cladding and trims, steel deck, joists, window frames, and doors are all affected. Tariffs will make construction and infrastructure development more expensive; combine that with trade uncertainty, and you have a recipe for delaying businesses investment.

The North American Free Trade Agreement (NAFTA) has increased continental trade, integrated supply chains, reduced transactional costs, improved transportation efficiencies, and in the end has benefited consumers. Ratification of this agreement is essential to preserve critical supply chains that have taken years to establish and to reinvigorate investment.

Looking ahead

The Alberta economy is slowly recovering, but not returning to the boom that we have historically seen.  Out of the economic downturn, new industries have evolved to help better diversify our economy and attract new talent – it is this evolution that has contributed to the discrepancy between economic perception and data. Believe it or not, our economy is growing. “The ones that are looking forward to a changing and evolving economy and one more suited to diversity, I think those are the ones that are going to be happier", Todd Hirsch, Chief Economist ATB Financial.

To access the 2018-2021 Government of Alberta Fiscal plan click on the following link: