Alberta is poised to lead the country in growth in the upcoming year according to economic forecasts, but ATB economist Todd Hirsch is tempering expectations on what this means for the province.
“In 2015 and 2016, our provincial economy shrunk by more than 7.5 per cent. That’s a huge drop. That was the first year since the 80s we have had back to back recessions,” he said in a phone interview last Friday, a week ahead of ATB releasing its own economic forecast. The ATB forecast is predicting 3.2 per cent growth in Alberta’s gross domestic product, but other provinces have experienced less of a drastic contraction than Alberta. “We’re starting from a lower bar.”
While growth always sounds like a good thing, Alberta will only be halfway out of the hole it dug in the past two years, he said, adding, “It’s going to take until 2019 to get back to where we were.”
Drilling projects have resumed after contracting heavily in 2015, but it’s coming slowly and activity will likely remain flat going into the next year, said Hirsch. The western side of the province, like Edson, Rocky Mountain House and Grande Prairie, is seeing more drilling taking place as opposed to northeast Alberta, simply because of the nature of heavy oil and the extraction process in this specific region, he said.
“Growth is not going to come from energy sector – that will start holding us back, with oil stuck behind $50,” he said, adding that barring any major, unforeseen changes, oil prices will likely remain static at that point.
However, after two years of contraction, flat oil prices – as opposed to sinking prices - could be seen in a positive light as well, he said. As well, in this new climate, it has become easier for other sectors to find workers at wages that don’t have to compete with a booming oilfield industry.
New jobs fueling predicted growth are going to be in the health and education sector, as well as tourism, said Hirsch.
“2017 has been a great year for tourism,” he said, adding that new sectors in high tech manufacturing and software development are growing as well.
However, he points out that high tech manufacturing and software development jobs require a certain set of skills or education, and can’t compete with the oil sector for providing higher paying jobs.
“All those really good paying jobs, those people that worked in the energy sector, they made the highest wages in the country. They still do,” he said, noting that there are 25 per cent fewer of those jobs now. “That’s not a piece that’s coming back right away.”
Agriculture and agri-foods industry are showing some positive signs of growth too, even though he acknowledged that for farmers, “one drought, one early frost, one massive hailstorm and it’s all gone.”
However, there are some positive signs for farmers taking on new ventures, or new crops, as there are for cottage industries, and small niche processers, like organic producers or honey producers, he said.
“They’re all having a great couple of years. There’s been a real shift in consumer preference, towards local,” he said of the latter.
St. Albert, for instance, has developed one of western Canada’s largest farming markets, which has turned into a “surprising attraction for the community,” drawing in people from around the area and in turn driving commerce.
The bottom line to Hirsch, when providing context to the predicted growth, is that Alberta is not experiencing a recovery, but rather, an evolution.
“Recovery, that word suggests you’re getting back to where you were. Alberta’s economy isn’t recovering in that sense. We’re not going back to $80 or $100 oil,” he said, adding that in his opinion, it’s going to be unlikely that a high school student could come right out of school and get an $80,000 paying job.
“It’s not a recovery, but I think the province is evolving or morphing into something different,” he said.
Communities need to rethink how they push for economic development and growth, he said, adding, “How do we reimagine how St. Paul’s economy is going to look like in five or 10 years, understanding it probably isn’t going to be driven by oil and gas?”
However, Lac La Biche-St. Paul-Two Hills MLA David Hanson said he isn’t so sure the oil and gas sector can be discounted out of future growth.
“I’ve been through ups and downs in province when oil was down to $11 a barrel. Everything was shut down,” the Wildrose MLA said. However, after three or four months, oil and gas activity started up again, in part due to a government that encouraged private growth, he said.
Now, there are some indications the worst has passed, with new pipelines in the work and new multi-well pads going up in Cold Lake, but he said, “It’s not anywhere near the growth we need to encourage economic activity in our area.”
Private investors are leery to put money into Alberta, seeing the current NDP government’s mounting levels of debt, according to the MLA. Last week, following the first quarter fiscal update, credit rating agency DBRS warned of future potential downgrades to the province’s credit rating if it does not rein in its finances.
Hanson points to predictions of growth as positive, but cautioned, “Public sector jobs don’t stimulate the economy. We need private sector jobs to stimulate the economy.”
