Alberta To Lead All Provinces In Economic Growth For The Rest Of The Decade
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Alberta’s Economy Is Set To Grow Even Stronger
After its best performance in five years in 2005, Alberta’s economy is set to grow even stronger this year, according to the Provincial Outlook report issued today by the BMO Financial Group Economics Department.
“We expect that Alberta will have the highest real GDP growth rate in the country in each of the next five years,” according to Paul Ferley, Assistant Chief Economist, BMO Financial Group. “Real GDP growth will rise to 5.2 per cent, improving on last year’s 4.5 per cent, as construction on and production from a number of oil sands projects ramps up. Growth will ease back to 4.5 per cent in 2007 before settling just below 4.0 per cent as oil prices moderate at the end of the decade.”
The medium-term forecast for Alberta’s economy assumes that oil prices decline gradually from over US$70.00/bbl currently to approximately US 60.00/bbl in 2007 and US$50.00/bbl by the end of the decade. “Though well below recent peaks, such prices are still high enough to stimulate rapid rates of investment in the oil sands,” said Ferley.
The oil and gas boom will continue in 2006, but it will be weighted more toward production and less toward construction compared to 2005. The Canadian Association of Petroleum Producers forecasts oil production to rise 13.6 per cent this year. While capital expenditures by the mining and oil and gas sector are expected to increase a solid 7.9 per cent in 2006 to $33.2 billion, this will be well below the 24.4 per cent pace of 2005. Construction expenditures in the sector are expected to rise 14.7 per cent, partially offset by a 21.8 per cent decline in expenditures on machinery and equipment.
Outside the energy sector, economic indicators so far in 2006 point to a very strong year in most sectors. After increasing a remarkable 12.4 per cent in 2005, retail sales are up an even stronger 16.6 per cent so far in 2006. “Retail sales received a boost in January when every Albertan received a $400 resource rebate from the government,” noted Ferley. Wholesale sales are also soaring, with growth of 16.5 per cent this year compared to 15.5 per cent in 2005.
Meanwhile, the housing market just keeps on going. Housing starts are expected to rise 12.6 per cent to 46,000 in 2006, matching the rate of increase in the previous year. “This would be the second highest number of annual starts in Alberta’s history,” said Ferley.
Signs of the booming economy are finally showing themselves in consumer prices. After having the lowest inflation rate in the country in 2004 at 1.4 per cent, Alberta now has the highest. “We expect an annual average inflation rate of 3.2 per cent this year,” stated Ferley.
The labour market has picked up speed in 2006. After growth of ‘only’ 1.5 per cent in 2005, employment so far in 2006 is already over 3 per cent from the 2005 average. “This robust employment growth has pushed the unemployment rate down to 3.5 per cent, which is arguably well below full employment,” stated Ferley.
“Labour shortages are being felt in many regions of the province.”
Provincial government spending rose a sharp 13.1 per cent in 2005-06. In 2006-07, program spending is budgeted to rise a relatively modest 4.1 per cent, but base operating spending (i.e. excluding natural gas rebates, capital grants and amortization) is budgeted to rise 8.1 per cent.
The provincial government surplus is expected to fall from $8.6 billion in 2005-06 to $4.1 billion in 2006-07, as a result of lower oil and gas royalties and corporate income tax cuts. The general corporate income tax rate was reduced from 11.5 per cent to 10 per cent effective April 1, 2006.
The full Provincial Outlook report is available at www.bmo.com/economic
@ July 17, 2006