And now we wait: Inflation and interest rates remain the big economic stories of 2023
By ATB Financial 9 March 2023 2 min read
Calgary—Despite the ongoing challenges presented by elevated inflation and interest rates, Alberta's economy is forecast to continue to grow in 2023 and 2024 while some other parts of Canada may experience recessions or near-recessions. The boost Alberta is getting from its energy and agriculture sectors will help propel it to the top of the provincial growth leaderboard. With that said, many households and businesses will be stretched thin by higher prices and borrowing costs.
ATB Financial’s updated forecast is for Alberta's real GDP to grow by 2.6 per cent in 2023 followed by 2.3 per cent in 2024.
“Central banks around the world, including the Bank of Canada, have raised interest rates to levels not seen since 2007 in an effort to slow the economy and, in turn, slay the inflation monster that reared its head last year," said Rob Roach, Deputy Chief Economist at ATB Financial. "The challenge is that higher borrowing costs take time to have their full effect on the economy. We will have to wait until deeper into the year before we know if they will tame inflation and how much economic damage they will do along the way."
ATB’s latest economic forecast outlines five key factors that continue to influence the direction of Alberta’s economy:
Alberta is producing more crude oil than ever, oil prices are forecast to remain strong compared to the five-year average set prior to the pandemic, and the planned completion of the Trans Mountain Expansion Project later in the year will add much-needed egress capacity for Alberta crude. As a result, oil and gas capital investment has bounced back from recent lows.
Higher interest rates are expected to weigh on employment growth. Nevertheless, we may not see the spike in unemployment that typically accompanies periods of elevated interest rates due to ongoing labour shortages.
During the third quarter of 2022, net interprovincial migration into Alberta reached its highest level since 1980. Ongoing population growth will support a range of sectors including housing and retail while also helping to ease labour shortages.
Offset by higher operating costs, Alberta’s agriculture sector benefited from better growing conditions and record-setting prices last year and should continue to be a solid contributor to the province’s economic performance in 2023.
Housing starts are expected to slow in Alberta after a strong performance in 2022. Even so, the forecast is 13.5 per cent higher than the five-year average set prior to the pandemic.
"It’s going to be an anxious year as we wait to see if the traditional approach to dealing with inflation works this time around," adds Roach. “With luck, the downturn will be mild and short and maybe, just maybe, we can get out of this without a surge in unemployment.”
About ATB Financial
With $58.5 billion in assets, ATB Financial is an Alberta-built financial institution that is a catalyst for economic growth in our province. We got started in 1938 to help Albertans through tough economic times. Today, ATB Financial’s more than 5,000 team members love to deliver exceptional experiences to nearly 800,000 clients through our many branches and agencies, our 24-hour Client Care Centre, four entrepreneur centres, and our digital banking options. ATB powers possibility for our clients, Alberta and beyond.
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ATB Financial’s Economic Outlook is intended for general information and educational purposes only and should not be considered specific legal, financial, tax or other professional advice or recommendations. Information presented is believed to be reliable and up-to-date but it is not guaranteed to be accurate or a complete analysis of the subjects discussed. All expressions of opinion reflect the judgement of the authors as of the date of publication and are subject to change. The actual outcome may be materially different. ATB Financial and any of its affiliates are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by ATB Financial or any of its affiliates and related entities.