After two difficult years, Alberta’s economy is climbing out of recession thanks in part to oil prices, but the Conference Board of Canada warns the road to a full recovery will be long.
In its winter quarterly report released Thursday, the board projects Alberta will lead the country in terms of real GDP growth in 2017, which is forecast at 2.8 per cent.
“The recent stability in oil prices has encouraged optimism that the worst is over, laying the foundation for a modest gradual recovery in capital spending in the energy sector,” the report said.
Oil prices are expected to remain low, which will hinder economic recovery and pull overall real GDP growth down to 1.9 per cent in 2018, the report says.
The OPEC factor
However, an agreement made between Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries in late 2016 to cut crude oil production by 1.8 million barrels per day supports a stronger price outlook for Alberta’s energy sector, the report says.
While OPEC restrains itself, Alberta’s output is forecast to increase, as new oilsands projects come online.
The price of crude oil is also expected to rise to almost $60 US by the end of 2018.
That energy sector recovery is good for the Canadian economy as a whole, according to Marie-Christine Bernard with the Conference Board.
“There was very weak growth for Canada as a whole in the last two years,” she said.
“The difficulties in the resource sector and in particular in the energy sector really hurt investment. That really pulled economic growth down in Canada to one and one-and-a-half per cent on average over the last two years.”
Rebuilding Fort McMurray
The report predicts despite sluggish investment growth in the energy, real total exports are expected to increase by 2.3 per cent this year.
“This will provide relief to the business sector, boost government coffers, and return provincial employment to pre-commodity-shock levels by 2018.”
Construction in Fort McMurray after last year’s devastating wildfire will lead to more than 2,500 homes built over the next few years, contributing around 0.4 percentage points to Alberta’s projected growth.
“Rebuilding efforts in fire-ravaged Fort McMurray and solid increases in oil production will be the difference for the Wild Rose province in 2017,” the report said.
All provinces except Newfoundland and Labrador are expected to grow this year, but the engines of 2016, British Columbia and Ontario, will lose momentum in 2017.
British Columbia will see a significant contraction thanks to the slowdown in the housing market, going from three-plus per cent growth over the last few years to 1.9 per cent growth in 2017.
Saskatchewan isn’t expected to claw out of its recession as successfully Alberta, with GDP forecasted to grow at 0.9 per cent thanks in part to challenges in the potash and uranium markets.