Financial institutions operating in Alberta agree on one thing: there will be growth in 2020. They just can’t agree on how much.
A Provincial Outlook report by RBC Economics says oil production is set to rise materially, business investment will pick up and improving prospects for pipeline capacity expansion will shore up confidence in the province. It predicts the economy will grow by 1.7 per cent.
This forecast comes on the heels of the Alberta Treasury Branch Economic Outlook last week. It predicted GDP growth of 0.9 per cent next year, driven by increased oil production, pipeline construction, an uptick in natural gas prices, a strong tourism sector and ongoing population growth.
“Don’t blame Albertans for thinking their economy is still in recession,” wrote Robert Hogue, RBC’s Senior Economist. “The level of activity in the province is still below what it was in 2014, just before the brutal two year-long downturn which sliced seven per cent off GDP.”
Hogue says that will change in 2020 as the energy, manufacturing and construction sectors gain traction.
“Yet the six years it will have taken to recover the recession’s losses are a reminder that the path forward will be full of potential obstacles. This is no longer Alberta’s boom-bust economy of old when it could reliably be counted upon to snap back into shape after a setback.”
Hogue says government-mandated cuts to oil production in response to bloated inventories and record-high local price discounts a year ago weighed heavily on the energy sector.
“While oil production didn’t decline outright—in part due to the subsequent partial lifting of those cuts—investment by the sector did. Drilling activity fell. Legal challenges against the expansion of the Trans Mountain pipeline and more stringent federal environmental assessment regulations enacted this year added to the energy sector’s gloom,” wroteHogue.
“Other parts of the economy felt the chill, including manufacturing, exports, housing and retail trade. The bottom line has been a virtual stalling of the provincial economy. We expect growth to be a puny 0.6 per cent in 2019.”
Hogue cited these positive signs for Alberta in 2020:
- The gradual lifting of mandated oil production cuts will set the stage for a significant increase energy output.
- Gains in existing pipeline efficiency, as well as the entry in operation of the Canadian section of Enbridge’s the Line 3 pipeline will help, as will increasing crude-by-rail capacity.
- Capital investment will pick up, in part reflecting the ramping up of the Trans Mountain pipeline construction.
- Corporate income tax cuts by the provincial government will create a more favourable investment environment.
Hogue wrote the outlook is even better for 2021 with economic growth forecast for 2.3 per cent “though this rests heavily on an improving investment picture.”
“And as Albertans know too well, much can alter that picture that’s outside of their control.”