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The Weekly Wrap, March 22, 2024

Alberta's economic outlook

By Mark Parsons, ATB Economics 22 March 2024 5 min read

In this week’s ATB Economics Weekly Wrap…

  • Weathering the Storm: ATB’s new Alberta Economic Outlook
  • Also this week: Inflation, retail sales and U.S. interest rates
  • Interesting Fact: The Finns are happy according to one index
  • Chart of the Week: Where is Alberta’s growth coming from?

It only happens four times a year, so we give our new Outlook top billing in this week’s wrap.

What we see unfolding is a growth cycle that is somewhat different than in the past. This time around, it’s an oil production and export story rather than a major run up in oil and gas capital spending.  It’s also an expansion across a broader range of sectors. It doesn’t add up to a classic Alberta boom, but it does mean Alberta’s economy is in much stronger growth mode than the rest of the country.

If you’re short on time, check out this “2 Minute Outlook” video.

Production and people - Alberta’s economy poised for more growth in 2024

First the stormy news. Many Alberta households and businesses are feeling the negative economic effects of high inflation and previous interest rate hikes. This will continue in 2024, even with rates finally expected to start heading south in June (that’s our call).

Alberta’s economy is not immune to this, but it is in a better state of affairs than if our economy was barely expanding, or worse, mired in recession.

Hence, the title of our latest provincial forecast: Weathering the storm: Alberta’s economy in 2024.

What explains Alberta’s relatively strong growth heading into 2024?

The first factor is long-awaited improvements in market access. The completion of the Trans Mountain Expansion is adding much-needed oil transportation capacity. Oil and gas investment will hold fairly steady, as producers remain cautious and focus on optimizing existing assets, but production will grow.

The second factor is population growth. We still expect net inflows from the rest of Canada, though not at 2023 record levels. This will keep Alberta’s population growing faster than other provinces, creating a huge demand for new homes. We already see this playing out in the construction sector, where housing starts have held above 40,000 units (annualized) for seven straight months.

Underneath the surface, we see something else. A broad range of sectors are growing such as petrochemicals, hydrogen, biofuels, technology, and tourism.

This sounds promising, but we still suggest seeking shelter on the range. There are so many risks out there, and Alberta’s economy is too dynamic to hang your hat on one number. We produce high and low scenarios (i.e. a range) to account for the inherent risk.

Alberta's real oil and gas exports are forecast to rise in 2024, 2025 and 2026

Alberta's real oil and gas exports are forecast to rise in 2024, 2025 and 2026

In other news…

Turns out that our outlook wasn’t the only thing released this week. We briefly summarize what happened in the economics universe this week.

  • Canadian inflation surprises - in a good way. For those looking for lower interest rates, the inflation news has been pretty positive lately. Canadian inflation fell below 3% for the second straight month in February, surprising almost everyone (us included). Even better, the closely-watched “core” readings are more than cooperating. Is it enough for an April cut? We think the Bank of Canada will want to see more evidence that the trend holds. We’re expecting June. In Alberta, inflation has moved above the national average in the last couple months (after holding below for most of the last two years) due to higher energy prices. This was primarily a result of ‘base period’ effects (i.e. prices were unusually low 12 months prior, especially for electricity).
  • U.S. Federal Reserve walking a tightrope. As pretty much everyone who follows these things was expecting, Wednesday’s U.S. Federal Reserve policy meeting ended with the Federal Funds Target Range unchanged at 5.25% to 5%. This was the fifth consecutive policy meeting in a row without a change to the trendsetting interest rate. The main message coming from the central bank was also unchanged: expect three rate cuts (likely of 25 basis points each) this year. Because U.S. inflation readings surprised to the upside in both January and February, the lack of change to the Fed’s core message was seen as good news by financial markets fearing that robust growth, an unflappable labour market and price pressure would lead it to take a hawkish turn. Federal Reserve Chair Jerome Powell, however, made it clear that the cuts depend on the data indicating that inflation is truly on the way to the 2% target.
The inflation rate in the United States has come down significantly since mid-2022

The inflation rate in the United States has come down significantly since mid-2022

  • Cautious consumers. It seems like ages ago now, but we finally have retail spending data for January. Sales were down in Canada. After two months of growth, sales in Alberta pulled back by $49.2 million or -0.6%, and are now below very elevated year-ago levels. While we do expect readings to improve slightly, growth will be muted this year. We are forecasting a 3.6% increase in retail sales in 2024. More broadly, we expect consumer spending in real (inflation-adjusted terms) to rise only 1.5% this year and to decline by 1.8% in per capita terms.
Seasonally-adjusted retail sales in Alberta fell by 0.6% in January 2024

Seasonally-adjusted retail sales in Alberta fell by 0.6% in January 2024

Interesting Fact: According to the 2024 edition of the World Happiness Report, Finland is the happiest country in the world. Canada does okay at 15th spot just behind Austria and just ahead of Belgium. The results are based on answers to the Cantril life ladder question: “Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?”

Chart of the Week: What’s driving Alberta’s economic growth?

Our Chart of the Week might seem like a snooze fest, and we’re pretty sure it won’t go viral. But it does summarize where we see Alberta’s economic growth coming from.

Real gross domestic product is the total value of what Alberta produces in volume terms (i.e. adjusted for output prices). It comes from a variety of sources, like investment, consumption and trade. The Chart of the Week shows what factors contributed to GDP growth in the past and what’s driving our forecast.

If you squint, you’ll see that we’re not expecting as much growth in 2024 from consumer spending or business investment, but we’ll get a boost from net exports (exports less imports).

Alberta's real GDP growth in 2024 is forecast to come from a variety of sources

Alberta's real GDP growth in 2024 is forecast to come from a variety of sources

Answer to the previous trivia question: A hotel in Finland hired a “professional sleeper” to test the comfort of their beds.

Today’s trivia question: Where did the United States land on the latest list of countries by level of happiness?

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