According to the Conference Board of Canada, Canadians’ savings increased from 1.4% pre-pandemic to 14.8% in 2020. This massive accumulation of savings will result in an economic rebound led by household consumption, with expected economic growth of 6.1% this year and 3.5% in 2022. With higher energy prices and increased manufacturing production, Alberta’s GDP is expected to be higher than the national average at 7.2% for 2021 and 5.6% for 2022.

The consumer spending spree will likely lead to higher inflation as an increase in demand for consumer goods will put upward pressure on prices. Higher food, vehicle, energy and consumer goods prices have already pushed up provincial consumer inflation as depicted in the graph below. According to Stats Canada, April saw the highest national rate of inflation in more than a decade rising to 3.4% (stripping out gasoline prices, inflation was 1.9%). While the Bank of Canada closely monitors inflation, it is likely that the central bank will adjust policy to permit core CPI inflation to exceed the 2% target to regain growth that has been lost during the pandemic and expedite recovery.

Construction material costs in the past year have soared with softwood lumber, plywood, and steel products seeing the largest gain. Many suppliers are not honoring quotes past 15 days. Material deliveries also remain extended and unpredictable with supply chain interruptions and limited production capacity.

Data

Alberta Treasury Board’s recent Economic Trends publication contained some positive data in four key areas:

Employment: While tighter public health measures were enforced in the second quarter, job gains in the goods sector offset almost half of the job losses in the service sector. An increase in housing demand and high oil prices sustained employment in construction and energy and manufacturing saw a rebound in employment.
Commodity Prices: Higher commodity prices stimulated output in non-energy business exports, exceeding pre-pandemic levels – primarily in lumber, forestry products, canola and food products.
Farming: Farm incomes increased by 46% in 2020 compared to 2019. Favourable growing and transportation conditions fueled canola and wheat farm revenue.
Motor Vehicles: As of April 2021, new vehicle sales increased year over year by 4.4% with trucks exceeding pre-pandemic levels. Used vehicles also saw an increase of 13% over the same time period.

On the Horizon

Higher gasoline prices over the next quarter will add to energy sector profit and cashflow, serving as a shot in the arm for an industry that has been struggling to stay afloat since the oil collapse. Government royalties have been better than budgeted and will add to fiscal revenue which will help offset some of the massive debt the province has accumulated.

As more Albertans have been vaccinated and COVID-19 infections have plummeted, the recent reopening of the province will energize the service sector and interprovincial tourism and expand the job market.

The housing market has heated up – the first five months of this year saw an increase of 100% in the resale home market compared to the first five months of 2020. At the onset of the pandemic, RBC noted that the Edmonton and Calgary housing markets were ranked as the most affordable large cities in Canada. Although average prices have increased year over year by 13% for Edmonton and 16% for Calgary, house prices remain affordable and with low mortgage rates this is great news for new buyers.

Looking Forward

Although Alberta’s recovery is expected to outperform other provinces, it is unlikely we will see the return to the boom of years past. The energy sector has suffered drastic cutbacks in investment, insurmountable setbacks in oil transport, and significant reallocation of capital. While the province is rich in non-renewable resources, there have been many external factors that have influenced price, supply and demand, vastly contributing to volatility in both economic activity and provincial revenue.

Nevertheless, there are a lot of exciting opportunities on the horizon with the development of renewable and alternative energy, carbon capture and geothermal. A strong agri-food industry and a growing technology and data sector are playing a large role in diversifying the provincial economy.

Alberta offers a low corporate tax rate, an educated, experienced and diverse workforce with the highest labor productivity rate in Canada and affordable housing – all essential factors in attracting business (Investalberta.ca).

We’ve been through a rough 6 years, but there are many positive signs that the tide is finally turning!