I had the opportunity to sit in at an ATB presentation by their chief economist, Todd Hirsch, last week for some of his insights into how he see's our economy faring this coming year. Some great information that I will implement with my own thoughts here. To paraphrase Todd, the secret to good "economic forecasting" is to revise it frequently!
First and foremost on our minds is the question of how the orange tide and their political philosophy will influence the Alberta economy. Our political structure over the past four decades has been so entrenched in conservative thought and procedure, it will take some major work to completely change the path we have been travelling. The "machine" that runs each political portfolio within the system has a myriad of components and positions that have been filled by the previous conservative regimes. Making changes within this structure will be a long process ensuring that any major change in philosophical direction will take a fair bit of time and effort. Premier Notley has given us no indication that she sees any major policy changes in our immediate future.
The Alberta Economy has been slowing rapidly with the decline of the price of oil, a major component of our provincial economy. Our GDP growth rate is the lowest it has been in five years, certainly raising the level of anxiety amongst Albertans. We may have not seen the bottom of the market yet, although we have seen the price of crude increase over the past couple of weeks. Investors are still skittish and this nervousness will contribute to the volatility in the market over the next few weeks, leading into the summer. Prices should improve by the end of the year, however, the price will most likely still be lower than the actual cost per barrel of many Alberta projects. There will need to be some major re-adjustments and cost-cutting within the industry and this will be an uncomfortable and painful process possibly leading to more layoffs and lowering of contractor costs.
We will also see a discouraging job environment in all sectors of the economy. The labour market for new graduates will decrease as all industries adjust to the economic slowing process. The rate of "in-migration" to Alberta should also slow significantly as we see a decrease in employment opportunities.
Another concern we should be aware of is the record level of Canadian personal debt, last week at 163.3% of earnings. The good news is that we seem to have reached a plateau with that level.
NOW SOME GOOD NEWS...
The Loonie has decreased in value over the past year, however, this is more of an American Dollar story than a decrease in our own value. Where we are set today is actually good news as it contributes to our value as an exporter, especially to the United States. Costs of goods shipped to the US are lower for them when our dollar is lower. Our economy would be in a far worse position if we were closer to par. The Canadian dollar is in a "monetary easing" position whereas the US is moving into a tightening position.
Our dollar position should also increase tourism from our neighbours to the south. That in combination with lower gas prices at the pump will be appealing for many vacationers, especially folks with travel trailers and motor homes.
Other secondary industries in our province, such as forestry, will have the opportunity to find top notch employees due to the slowing of the oil industry. It is difficult for secondary industries to compete for manpower when oil prices are high. Other industries will also benefit from the low cost of fuel... imagine the increase in the bottom line for the trucking industry.
Although we are in the midst of a slowing economy, Albertans should not be overly worried. That is not to say we should ignore what is going on around us. It is not "business as usual", we should be making prudent, educated life decisions. The biggest threat to the economy is fear... fear leads to irrational decision making. This year will be a flat year for growth as we adjust to the new economic realities, however, we should return to normal levels of growth by 2017.
"My life has been full of terrible misfortunes, most of which never happened" Michel de Montaigne
www.atb.com/economics
