Forecast
Both RBC and ATB recently cut Alberta’s real GDP growth in half for 2019, with projected growth somewhere between 0.6 and 0.7 percent, behind all other provinces. Growth for 2020 is expected to be between 1.6 to 2.4 percent, still well below trend. Table 1, below, revealed the impact of oil production cuts and a reduction in energy investment on provincial GDP. Although gloomy, we will likely avoid dipping into another recession. Economic growth continues to be hampered by pipeline restrictions, a reduction in capital expenditures and low natural gas prices. Non-residential construction investment is expected to decline 0.9%. A provincial corporate income tax rate cut from 12% to 8% over the next four years may stimulate capital investment over the short to mid-term.
Table 1: Provincial Outlook June 2019; Source
The Bank of Canada’s (BOC) July press release indicated a convergence of American and Canadian economies is on the horizon, with Canadian growth accelerating and U.S. growth declining towards trend. Escalating global trade wars resulted in global investment taking a hit and remains one of the more volatile and unpredictable variables influencing economic forecast.
What the Data Indicates
Recently published data from the Alberta Government reflected a year over year reduction of 14.5% in non-residential permits. Elimination of the carbon tax resulted in inflation falling to a five-month low in June. Although Canadian exports are still growing, they remain 1.5% lower than they would have been without trade tensions, resulting in a 2% reduction in GDP (BOC).
On the Horizon
Steel Pricing:
Worldsteel Association expects steel demand to moderately grow for 2019-2020, tempered by trade wars and a slowing global economy. Arcelor-Mittal recently announced a third round of steel price increases with Nucor, US Steel, CSI and NLMK US following their lead. Slowing demand in the auto and construction sectors will certainly affect future steel pricing.
Trans Mountain Pipeline (TMP):
Now that the TMP has been given the green light to proceed there are still many hurdles ahead. TMP CEO, Ian Anderson, remains optimistic that construction may resume as early as this fall. Although the project will take years to complete, once construction resumes it will boost business confidence and we should see a rebound in capital investment in this province again.
Politics:
We are less than three months away from the federal election and according to recent polls the Liberals are closing in on the Conservatives, so the outcome is not a sure bet, for a province that has a Conservative stronghold. Either outcome will likely end in a minority government, which will make it much tougher to enact legislation.
In a rare move, CNRL, Cenovus and MEG Energy placed full page ads in newspapers across Canada calling on voters to influence our politicians and support the energy sector. Federal policies have made it cumbersome to build pipelines and supporting infrastructure, which has resulted in a mass exodus of energy investment in the province. Many businesses are at a stand still until there is some sign of recovery and it is having a huge impact on building construction in Alberta.