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Alberta hottest economy in 2017, but provincial deficit unchanged at $10.5 billion

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Alberta with hottest economy in Canada, deficit forecast stays the same

“Alberta’s economy is recovering, but it is not returning to what it looked like in 2014.” – Todd Hirsch

Alberta’s economy continued to pick up momentum in the first half of 2017, with gains in jobs, housing, exports and other areas, according to a press release from the Alberta Government, which is now forecasting economic growth of 3.1 per cent in 2017 compared to 2.6 per cent in the budget.

Most private sector and other forecasters expect Alberta’s economic growth to lead the provinces in 2017.

“The energy sector continues to be challenged by oil prices hovering below $US 50 per barrel. At those levels, Alberta’s energy sector struggles. Drilling activity and hiring has picked up modestly, but growth in the sector remains tenuous and not likely to snap back to pre-recession levels anytime soon,” said Todd Hirsch, ATB Financial’s chief economist.

The labour market is adding jobs—some 35,000 over the last 12 months (+1.5 per cent), though positions have tended to be lower paying and and hiring in the private sector has been lagging, according to an Alberta Treasury Branch economic report.

There is some improvement with oil and gas, agriculture, food processing, tourism, retail and manufacturing all experiencing modest growth.

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“Our plan to support jobs and economic growth is working and we will continue to have Albertans’ backs as we regain the losses from the recession. There is good reason to feel optimistic about Alberta’s recovery and we will continue on the path to balance while supporting the needs of everyday Albertans,” said Finance Minister Joe Ceci.

The Alberta Activity Index, a weighted average of nine monthly economic indicators, climbed about five per cent through to May. Other positive economic indicators include:

  • The number of rigs drilling averaged 127 in the first seven months of 2017, doubling over the same period in 2016.
  • Housing starts through July increased 23 per cent from the same period 2016.
  • Non-energy exports were up 7.1 per cent in the first half of 2017 and reached the second highest mark on record in March at $2.9 billion.

According to the Alberta Government, the persistent effects of the downturn and a lower-than-expected oil price weighed on provincial revenue.

It was partly offset by an improved light-heavy crude differential, along with higher revenue from Crown lease sales and investment income.

“Alberta’s economic recovery is exceeding expectations. Our GDP forecast was upgraded from 2.6% to 3.1%. Employment forecasts have grown and unemployment is coming down. More jobs will be created this year in all sectors and Alberta will once again lead the country on many economic indicators,” said Ceci.

Government is addressing the revenue shortfall by using $250 million of the budgeted $500 million risk adjustment and targeting a further $200 million on top of the $200 million in savings proposed in Budget 2017. The forecast deficit is unchanged from budget at $10.5 billion.

“Our plan is clear and it is working – we will reduce the deficit over time by restraining growth in spending while protecting health care, education and the other services Albertans count on. The severe and reckless cuts proposed by others to take billions out of the budget this year would hurt Alberta, put people out of work and weaken the economic recovery,” said Ceci.

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“Alberta’s economy is recovering, but it is not returning to what it looked like in 2014. Instead, the economy is evolving into one that is more diversified, and more typical of other Canadian provinces. It is a slow process and it may be a few more years before we see a full economic recovery,” said Hirsch.

ATB Financial’s Economics and Research team is forecasting real GDP growth of 3.2 per cent this year, followed by a more modest expansion of 2.1 per cent in 2018.

2017-18 First quarter forecast ($ millions)

Full-year forecast Budget 2017 Q1 forecast Change from Budget
Income taxes

$15,095

$14,730

$(365)

Non-renewable resource revenue

3,754

3,377

(377)

Other revenue

26,173

26,267

94

Total revenue

45,022

44,374

(648)

Operating expense (net of in-year savings)

46,010

45,812

(198)

Climate Leadership Plan operating expense

868

768

(100)

Disaster/emergency assistance expense

235

213

(22)

Other expense

7,906

7,869

(37)

Total expense

55,019

54,662

(357)

Risk adjustment

(500)

(250)

250

Deficit

$(10,497)

$(10,538)

$(41)

Energy and economic assumptions Budget 2017 Q1 forecast Change from Budget
WTI (US$/bbl) *

55

49

(6)

Exchange rate (US¢/Cdn$)*

76

77

1

Real GDP growth (%)**

2.6

3.1

0.5

Unemployment rate (%)**

8.0

7.8

(0.2)

*2017-18 fiscal year **2017 calendar year

Three-month actuals ($ millions)

April 1 to June 30 Budget Actuals Change from Budget
Revenue

$11,564

$12,187

$623

Expense

14,989

15,594

$(395)

Deficit

$(3,425)

$(2,407)

$1,018

Posted in: Jude on Alberta

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