Despite the slump in oil and gas prices, Alberta’s still-robust economy should rebound even more by the second half of 2002 – boosted in part by renewed consumer confidence and improving markets for secondary sectors such as high-tech, predicts a new report.
And the provincial government can take credit for fuelling this sense of optimism by creating a positive environment for business, says the Investment Dealers Association of Canada, a self-regulatory organization for the brokerage industry.
“I think the fiscal management by the government has been a major ingredient in instilling this high level of business confidence,” said Ian Russell, IDA’s senior vice-president, capital markets, during a visit to Calgary last week.
While other provinces enjoyed a recent cycle of extended prosperity and growth, Russell said Alberta has made the most of the fair-weather opportunity by chopping tax rates to competitive levels, cutting spending by $1.26 billion this year, reducing its debt burden and maintaining a solid credit rating.
The IDA is predicting Alberta’s economic growth will dip to just above two per cent next year, a figure down from this year’s four-per-cent growth figure and one that reflects softening oil and gas prices.
The province is still in better fiscal shape than any other across Canada, while planned capital spending in the medium and long-term – pegged at $77.5 billion this year – will help keep Alberta sheltered until the global economic storm abates.
“It isn’t hard to trace where all that money is going to go,” adds Russell, including major areas of large project spending in the oilsands, further development of pipeline infrastructure and downstream development in the energy sector.
“The oilsands project in particular will complement the conventional exploration and development activity in the Western Sedimentary Basin, and will really underpin solid performance,” he says.
“That oilsands development is a huge potential that hasn’t been tapped and underscores robust economic activity going forward.”
A second-quarter fiscal update released last Wednesday by Alberta finance minister Pat Nelson shows the province is still on target to score the second-highest resource revenue in Alberta’s history at $6 billion, with the price of oil estimated at averaging out at $23.50 US a barrel and a natural gas price average of $3.85 Cdn per MCF.
According to government estimates, Alberta should lead the rest of the country with economic growth of 4.9 per cent.
“There is good reason that Alberta is in the best position of any province to respond to the global economic slowdown,” said Nelson, who also announced none of the predicted $12-million surplus for the 2001-02 fiscal year will go to debt repayment.
“This government takes realistic action when necessary, budgets on sound fiscal policy and has provided Albertans with a solid economic foundation through tax cuts, debt reduction and prudent spending.”
The Conference Board of Canada is also gazing into its crystal ball, predicting that most provincial economies will rebound in the second half of 2002.
“Given the expected recession in the United States, which will lead to much weaker demand for Canadian manufactured products, it is not surprising that central Canada will be the hardest hit region in the coming quarters,” said Mario Lefebvre, associate director of the board’s provincial forecasting group.
Only Alberta is expected to post growth above two per cent in 2001, the board says.
Ted Chambers, a research professor with the Western Centre for Economic Research at the University of Alberta’s business faculty, says the rosy estimates of growth appear within reach.
“I admire the courage of anybody who forecasts in this day and age,” he joked.
“But all things considered, it seems to be me to be a reasonable forecast.”
Chambers says the IDA and Conference Board predictions of an economic recovery in Alberta by the second half of 2002 will be easily realized. “We may be surprised, because it may occur before that,” he said.
“It looks to me a little more favourable now than it did five or six weeks ago. “From what I’ve seen in terms of retail sales, the housing sector and current expenditures on automobiles, consumer confidence is holding up pretty well.”
Edmonton’s diversified economy is well-positioned to help lead the recovery, particularly with the planned expansion of oilsands-related development.
Calgary’s high-tech sector – buffeted in recent months by layoffs at wireless firms like Nortel and the stock plunges of tech darlings such as Cell-Loc and Wi-LAN – also seems primed for a comeback, says Chambers.
“I think the medium and longer term outlook for the high-tech sector is where the future lies,” he said.
“Obviously, there have been a lot of difficulties, but I think it will come out of all this a lot better and a lot stronger than when it went in.”
That’s music to the ears of John Masters, president of Calgary Technologies Inc., a not-for-profit incubator for entrepreneurs and startup firms. Calgary’s technology sector was never wholly reliant on e-commerce, he said, so was better able to weather the dot-bomb crisis which wracked tech stocks for most of the past year.
“Our tech sector is much more diversified than just a dot-com orientation, so we have greater capacity to ride through this storm,” Masters says.
But the next challenge for the province, he said, is to create an environment to stimulate and attract seed and venture capital for startup technology companies. “Our investment is still skewed towards the primary engine of growth being the energy sector.”
Venture capital raised in the province has dipped to $75 million through half of this year compared to $189 million for all of 2000, although Alberta companies have maintained their share of three per cent of the total venture capital available in Canada, estimated to be $6.3 billion last year.
The IDA report also states business confidence in Alberta remains buoyant, with a tight labour market and an unemployment rate which has averaged a nation-leading 4.5 per cent over the past nine months.
“Consumer confidence and spending will play a role in the recovery process,” noted the IDA’s Russell, who said an economic turnaround late next year will be driven by low interest rates and a re-energized U.S. economy.
“When the major product that you’re producing is priced in U.S. dollars, but the costs are in Canadian, that’s a big comparative advantage for Alberta,” he added.
Alberta’s economy is practically carefree compared to B.C., which is still heavily dependent on forest products and facing huge layoffs in its public service.
Last week, British Columbia increased its projected budget deficit to $3.4 billion Cdn, blaming a $1.2-billion cut in projected revenue from sources such as energy royalties and wholesale electricity sales to the United States, as well as U.S.-led trade penalties on Canadian lumber.
