After an interruption of 44 years of Progressive Conservative Government, the United Conservative Party regains a foothold in Alberta. But what does it mean for our future, and will Jason Kenney be able to rebuild our resource dependent economy?
ATB’s recent real GDP growth forecast for Alberta for 2019 and 2020 is 1.4 percent and 1.7 percent respectively, lower than 2018. On the positive side, the Conference Board of Canada is predicting a resurgence in business growth for 2020 – after five years of business investment losses this can’t come soon enough. While there are some positive signs, such as higher employment, Alberta is still lagging behind many other Provinces on key economic indicators.
Global trade remains volatile: Strained trade relations between China and U.S., USMCA (formerly NAFTA) ratification and Brexit extension all contribute to global economic unpredictability. The most recent trade dispute between Canadian Canola producers and China has added another element of uncertainty for the Prairies. Forty percent of Canada’s Canola and Canola product exports go to China with Alberta producing thirty percent of that volume. While the Canola Council of Canada is working diligently with the Canadian and Chinese governments to resolve this dispute, a resolution will not come in time for spring seeding. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is expected to open doors to 500 million consumers in Asia Pacific regions, which will give farmers, and other industries, access to alternative markets. In light of increased trade tensions and weakening global expansion, the IMF (International Monetary Fund) has lowered its forecast of global growth for 2019 from 3.5 percent down to 3.3 percent.
What the Data Indicates
Recent data from C.D. Howe Institute revealed that pipeline delays and green policies cost the Canadian oil industry $100B in lost investment over the last two years. The Alberta energy sector is in a state of unpredictability as more oil companies have moved operations to the Permian Basin.
Although the National Energy Board recommended approval of the Trans Mountain Pipeline, the federal government has delayed their approval to June 18. Once built, this pipeline will triple capacity of current pipelines and provide much needed boost to Western Canadian Select oil prices and energy investment. If the pipeline bottleneck is resolved, the question remains whether there will be enough confidence in the Canadian energy sector to attract new investors.
On the Horizon
There has been a lot of talk around the inverted yield curve. To put it in simple terms, a yield curve is a graph depicting the relationship between interest rates over time on any given investment. Interest rates will be higher on longer term investments, reflecting the increased risk of uncertainty over time. Economists believe that the shape of this curve can predict the state of the economy. History has shown that inverted yield curves, where interest rates are higher for shorter term investments, are strong predictors of economic recession. The yield curve on U.S. treasury bills is currently inverted – a worrisome sign that the U.S. economy may be heading into a deep economic slowdown.
As we look ahead, what can we expect for our industry? Unquestionably it has been a challenging four years, precipitated by the oil collapse. Stats Canada 2019 predictions include a 0.9% decline in construction spending and a surge in manufacturing investment to 31.5% with most of that increase coming from chemical, wood products and primary metal industries. The graph below reveals the investment trend in Alberta over time.
Total Private & Public Expenditures in Alberta (construction, machinery & equipment):
This year construction will remain relatively flat with a slight increase for 2020 and gradual recovery over the next decade as the Alberta economy diversifies. Both Provincial and Federal governments may offer incentives to stimulate growth and economic diversity but that takes time to trickle through the economy and unfortunately won’t happen anytime soon.