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The Weekly Wrap, December 15, 2023

A new outlook on…the Alberta economy

By Mark Parsons, ATB Economics 15 December 2023 8 min read

In this week’s ATB Economics Weekly Wrap…

  • A speed bump in the faster lane - ATB’s latest outlook
  • Connect the dots - U.S. Fed on hold…for now
  • Servicing debt - Less room for spending
  • Charting its own course - The Alberta housing market
  • Next week: Last inflation reading before the holidays
  • Chart of the Week - Finding a home on the forecast range

It only happens four times a year, so we give ATB’s Alberta Economic Outlook the headline this week. Our outlook report comes with a new and improved format. And for data nerds (we know you’re out there), dynamic charts! The full report is here. We also love to hear your feedback, so please let us know how we’re doing at

Motoring along - Alberta set to outperform again next year

Our new forecast sees Alberta’s real GDP growth easing to 2.1% next year and picking up to 2.7% in 2025. That’s our baseline; see the Chart of the Week for the high and low case.

There’s a lot of information in the report, covering virtually every major sector of the economy. It boils down to two main themes:

  1. The Wait - When Tom Petty sang “the waiting is the hardest part,” he wasn’t talking about lagged impacts of rising interest rates. But that’s how many borrowers feel heading into 2024.

    The Bank of Canada will maintain its ‘pause, wait and see’ stance until it feels inflation is on a clear downward trajectory. As it does that, more households will be resetting mortgages and other loans at higher rates. This will put a damper on consumer spending.

    Our call for the first interest rate cut is June, a little later than the market. We see the Bank proceeding with caution, careful they don’t act too soon only to have to raise rates again later. The Bank will be keeping a close eye on three things it really wants to come down: 1) core inflation; 2) inflation expectations; and 3) wage growth. All three have been sticky. 

  2. Speed bump in the faster lane - While the lingering impact of higher interest rates acts as a speed bump, growth is expected to be faster in Alberta again next year than the broader Canadian economy. Alberta’s resilience against a tough backdrop can be traced to three factors: 1) stronger population growth than other provinces (interprovincial migration is the differentiator); 2) an expanding energy sector benefiting from the long-awaited Trans Mountain Expansion pipeline project; and 3) emerging growth areas like hydrogen, biofuels and technology. In particular, Dow’s recently announced Path2Zero project is providing a big boost. 


U.S. Fed - on the sidelines, but ‘dot plot’ points to cuts

The statement from the Federal Reserve (‘the Fed’) gave no indication of when it will start to lower rates. However, the ‘dot plot’ forecast from Fed officials suggests cuts in the order of 75 basis points next year.

The Federal Open Market Committee (FOMC)* announced on Wednesday it is leaving the target range for the federal funds rate at 5.25 to 5.5%. This was the third straight meeting without a change to the benchmark rate. The decision came after Tuesday’s CPI report showing a slight decline in the inflation rate (3.1% in November compared to 3.2% in October).

The FOMC notes that the lagged impact of past interest rate hikes “remains uncertain” and that it “will continue to monitor the implications of incoming information.” This is much like the Bank of Canada’s ‘wait and see’ approach, though our central bank is dealing with a much weaker economy.

As for the rate outlook, the Fed published its updated ‘dot plot’ (each dot represents a Fed official forecast). Taking the median, gives a 75 basis point cut next year, but with a wide degree of variation. At the high end, one forecast has the fed funds rate exactly where it is now at the end of 2024 (5.25-5.5%). At the low end, the rate is 3.75%-4%. In the following chart we show how things have changed in just a few months. In September, it was higher for longer. In December, we’re more or less back to where we were in June.

*The FOMC is the body of the U.S. Federal Reserve System that sets national monetary policy.

As per the December 2023 FOMC meeting, the median forecast for the fed funds rate was down to 4.6% by the end of 2024 and 3.6% by the end of 2025

As per the December 2023 FOMC meeting, the median forecast for the fed funds rate was down to 4.6% by the end of 2024 and 3.6% by the end of 2025

Servicing debt  - getting more expensive

Interest costs are consuming more of the household budget. This will keep consumers cautious heading into next year.

Canadians are renewing the mortgages (and other loans) at higher rates than before. It’s little surprise, then, that household interest payments (as a share of disposable income) keep going up, rising to 9.3% in the third quarter from a low of 5.9% in the first quarter of 2022. This is the highest ratio since the mid-1990s.

We don’t have quarterly data for the provinces, but Alberta’s debt service ratio (interest only) was 5.8% on average in calendar 2022 (latest available), one percentage point lower than the national average. We forecast that it will rise to nearly 9% in 2024 and 2025, which is largely why we expect a cool down in real consumer spending next year (up 1.2% overall in real terms, but down 1.2% in per capita terms).

Alberta housing market - forging its own path

Demographic forces can be powerful. It’s one of the main reasons Alberta’s housing market has stayed relatively tight in a higher interest rate environment.

Alberta’s population grew 4.1% in the year ending July 1, outpacing the national average of 3%. The key difference? Inflows of interprovincial migrants.

People need places to live and the additional demand has contributed to strength in the Alberta housing market. Alberta benchmark home prices rose for the 12th straight month in November, hitting an average of $495.5K. They are up 8.4% year-over-year (driven by gains in Calgary) compared to 0.6% nationally. While the gap has narrowed, Alberta prices are still well below the national average of $735.5K (January 2015 was the last time Alberta was above). The national average is driven by some expensive markets, namely Toronto ($1.1 M) and Vancouver ($1.2M).

Since the June/July Bank of Canada rate increases, Alberta’s housing market has stayed fairly tight based on a couple measures: 1) months of supply of homes (note the diverging paths in the chart below); and 2) the sales-to-listings ratio, while falling recently, is still higher than other provinces (64.5 in Alberta vs. 49.8 nationally). There are, however, some signs that the rate hikes have slowed the market. Unit sales dipped slightly in November, the second straight decline.

Seasonally-adjusted months of residential inventory in Alberta reached 2.8 months while they rose to 4.2 months nationally in November 2023

Seasonally-adjusted months of residential inventory in Alberta reached 2.8 months while they rose to 4.2 months nationally in November 2023

Next week: November CPI!

We know what the Bank of Canada wants for Christmas: a soft core Consumer Price Index (CPI) reading to finish the year. Yes, very different from my childrens’ wish list, but important nonetheless.

To recap, inflation is moving in the right direction (down), and there was much to like about October’s report: lower headline inflation (3.1%), food inflation is moderating (though still very high), and softer core (trend) measures.

The latest inflation thorn in the side, though, is shelter costs and we’ll be watching the rental cost index. It has replaced food as the new inflation driver. Gasoline prices were down again in November, and should subtract roughly the same amount from the annual inflation rate as in October. For the Bank of Canada, it pretty much boils down to the core. From the December 6 rate decision: “Governing Council wants to see further and sustained easing in core (emphasis ours) inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

Interesting Fact…Alberta is a highly capital intensive economy, something that contributes to its comparatively high level of labour productivity (output per hour worked).  Business investment in non-residential assets and intellectual property was $66.9 billion last year (22% of the national total), second only to Ontario ($100.5 billion). In per capita terms, this works out to about $14,830 per resident, first among provinces and well above the national average of around $7,860. Saskatchewan, another resource-based economy, is second after Alberta with business investment per capita at $11,740.

Chart of the Week: A wider perspective

“If there's one thing that's certain in business, it's uncertainty.” – Stephen Covey, Author

In his book “The Next Age of Uncertainty,” former Governor Stephen Poloz argues that the world is becoming more volatile and harder to predict. Technological forces, aging, climate change, income inequality, and mounting debt have created a new era of uncertainty.

In the world of economic forecasting, this means planning for a range of plausible outcomes. In other words, develop a well-informed forecast, but also be prepared for alternatives. For Alberta’s economy, this is especially needed. It is more volatile than in other provinces due to its high trade exposure and reliance on natural resources. 

ATB Economics has provided alternative scenarios for real GDP as shown in our Chart of the Week, and elaborated in more detail in the outlook. In our low case, real GDP contracts slightly in Alberta by 0.2% in 2024 before improving to 2.0% in 2025. In the high case, output grows by 4.1% in 2024 and 3.2% in 2025.

In the low case, a more significant downturn could arise from a variety of factors, including a longer-than-expected battle against inflation, a further slowdown in the Chinese economy, geopolitical tensions, policy uncertainty and extreme weather-related events. In the high case, Alberta could be propelled by several factors, including stronger-than-forecast U.S. and global growth, higher commodity prices, and more final investment decisions on major projects in Alberta.

As per ATB’s latest economic forecast, Alberta’s real GDP is expected to rise by 2.1% in 2024 and 2.7% in 2024 in our baseline scenario

As per ATB’s latest economic forecast, Alberta’s real GDP is expected to rise by 2.1% in 2024 and 2.7% in 2024 in our baseline scenario

Daily trivia

Answer to the previous trivia question: Nine countries on the World Bank’s list of GDP in current dollars generate less annual economic output than the 10-year US$700 million contract Shohei Ohtani signed with the Los Angeles Dodgers.

Today’s trivia question: On December 15, 1791, the first 10 amendments to the U.S. Constitution were ratified as a single unit. What are the first 10 amendments known as?

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