Mar 16, 2011, Alberta economic growth to lead country in 2012

Alberta’s economic growth will lead the nation in 2012, says a new report released Wednesday by TD Economics.

The report forecasts GDP growth of 3.2 per cent for the province in 2012 with the national average at 2.5 per cent.

For this year, TD Economics predicts Alberta’s economic growth to be 4.2 per cent, behind Newfoundland and Labrador at 4.7 per cent and Saskatchewan at 4.3 per cent.

At the national level, economic growth for Canada this year is expected to be 3.0 per cent.

Dan Sumner, economist with ATB Financial in Calgary, said the TD forecast is in the same range with what many other economists have been saying recently.

“It’s in the realm of what we’re expecting and it shows that things have improved a lot in the last four months particularly,” he said, adding that energy prices are the key to the provincial economic growth.

“We’ve had high oil prices for quite a while now. That’s going to underpin investment in the oilsands and these kind of decisions take a while . . . Now they’ve been steadily higher it’s going to filter through.”

Sumner said Alberta has been slow to see recovery in the labour market although it has picked up in the last two months.

“But in 2010 as a whole employment actually fell. It was down 0.4 per cent. In 2011, we’re expecting to see pretty strong employment growth. Employment is typically considered a lagging indicator. GDP growth happens first. Then employment happens after,” said Sumner.

TD Economics said the estimated GDP growth in Alberta for 2010 is 3.0 per cent following a 4.5 per cent decline in 2009. It said the annual average per cent growth from 1995 to 2008 in the province was 3.1 per cent.

In other economic indicators, TD said employment would rise 3.0 per cent this year and by 2.0 per cent in 2012 in Alberta with the employment rate falling to 5.9 per cent in 2011 from 6.5 per cent in 2010. In 2012, the unemployment rate will fall to 5.6 per cent, said TD.

The TD report also forecast retail sales to grow 4.9 per cent this year and by 4.4 per cent in 2012 in Alberta.

Alberta housing starts are forecast to fall by 14.3 per cent this year followed by a 6.5 per cent increase the next year while existing home sales should drop by 1.5 per cent in 2011 and another 8.0 per cent in 2012.

And TD is forecasting average house prices in the province to grow by 1.3 per cent this year and by another 0.8 per cent next year.

Craig Alexander, chief economist for TD Bank Group, said that over the next 12-18 months, the overall pace of the Canadian economic expansion is likely to moderate, as interest rates rise and domestic spending cools.

The report says prospects for resource exports remain relatively bright. Although prices for key commodities may be prone to a moderate pullback in the near term, as demand is disrupted in earthquake-ravaged Japan and monetary authorities in China and other emerging markets work to fight against inflation risks, prices will remain supportive to national income growth, said the report.

“Our outlook assumes that oil prices will average US$95-100 per barrel throughout this year and next, which at that level would deliver a modest net benefit to Canada’s overall economy,” said the report.

“There is a significant geopolitical risk in the premium of oil prices at the moment. Markets have priced in a supply disruption beyond just Libya, but crude oil prices will fall if that does not materialize,” said Alexander. “However, given the high level of uncertainty around how Middle Eastern developments will unfold, crude oil prices remain a wild card for the outlook.”

The TD report said there is no shortage of risks that could materialize over the next few years and negatively impact the economic path. They include high household debt, “excessive valuation in housing markets”, rising inflation in emerging markets, spreading unrest in the Middle East, European government financial woes, and a U.S. recovery reliant on monetary and fiscal stimulus.

By Mario Toneguzzi, Calgary Herald