Alberta's Economic Outlook Catherine Rothrock Chief Economist - PowerPoint PPT Presentation

Alberta's Economic Outlook Catherine Rothrock Chief Economist Alberta Treasury Board and Finance January 30 th , 2020

Global Economy in Perspective 2

Global economic outlook to improve Global economic growth forecast Title Actuals Oct-18 Apr-19 Oct-19 Jan-20 4.5 4.3 4.1 3.9 3.7 3.5 3.3 3.1 2.9 2.7 2.5 Source: International Monetary Fund, World Economic Outlook Database 3

Global manufacturing finds a bottom? Purchasing Managers' Index (PMI), PMI >50 indicates an expansion (index) 58 World US 56 Emerging Markets 54 52 50 48 46 Source: Bloomberg 4

Labour markets remain strong Unemployment Rates in Select Advanced Economies (%) Canada UK* Germany Japan US 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 Sources: Statistics Canada, U.S. Bureau of Labor Statistics, Statistical Office of the European Communities, Japan Ministry 5 of Health, Labour and Welfare and Haver Analytics

Monetary policy accommodative Central Bank Policy Rates (%) 2.5 Canada US 2.0 1.5 1.0 0.5 0.0 Sources: Bank of Canada, Bank of Australia, Bank of New Zealand and Federal Reserve Board 6

The Loonie improving from May’s low Canadian dollar exchange rate US Cents/$C 82 USD/CAD 81 80 79 78 77 76 75 74 73 72 Source: The Bank of Canada . 7

Muted outlook for oil prices West Texas Intermediate (US$/bbl) 120 100 80 60 40 20 0 Source: Alberta Treasury Board and Finance, f-forecast 8

Alberta's Economy in Perspective 9

Alberta economy heading into expansion • Growth forecast to pick up after near-term weakness – Activity in the province stagnating following mid-year rebound. Real GDP is forecast to slow to 0.6% in 2019. – Real GDP set to expand 2.7% in 2020 and 3% over the medium term. • Solid exports and strengthening domestic demand to underpin growth – Oil production, manufacturing expansions to support exports. – Business investment set to grow. • Prolonged recovery – Muted outlook for oil prices; investment to remain below 2014 levels. – Full recovery in real GDP in 2020, nominal GDP in 2021. – External risks remain elevated. 10

Investment to fuel growth in domestic demand Contribution to growth in Alberta real GDP by expenditure (percentage points) 10 Total Domestic Demand* Exports Imports Real GDP (%) 8 6 4 2 0 -2 -4 -6 -8 -10 Source: Statistics Canada, Haver Analytics, Alberta Treasury Board and Finance; e-estimate, f-forecast 11 * Includes total household, business, and government spending

Delayed recovery in incomes Real GDP, Real GDP Per Capita and Nominal GDP, Indexed to 2014 Peak (2014=100) 120 Real GDP Real GDP per Capita Nominal GDP 115 110 105 100 95 90 85 80 75 70 2014 2015 2016 2017 2018e 2019f 2020f 2021f 2022f 2023f Source: Statistics Canada, Haver Analytics and Alberta Treasury Board and Finance; e-estimate, f-forecast 12

Provincial activity stagnates The Alberta Activity Index (May-18=100) 102 100 98 96 94 92 90 88 Source: Alberta Treasury Board and Finance 13

Business output pulls back from 2019 high Alberta’s merchandise exports and manufacturing shipments ($millions) ($millions) 13 Merchandise Exports (left) Manufacturing Shipments (right) 7.5 12 7.0 11 6.5 10 6.0 9 8 5.5 7 5.0 6 4.5 5 4 4.0 Source: Statistics Canada 14

Oil and gas activity rebounding? Number of rigs drilling for oil and gas in Alberta 300 2015-2018 Range 2015-2018 Average 2017 2018 2019 2020* 250 200 150 100 50 0 Source: Canadian Association of Oilwell Drilling Contractors 15 *The estimate for January 2020 based on average rigs drilling in the first three weeks

Oil and gas investment to pick up, production will continue to rise Alberta energy investment and crude oil production ($billions) (mmbpd) Oil Sands Investment (left) 70 4.5 Conventional Oil and Gas Investment (left) Production (right) 4.0 60 3.5 50 3.0 40 2.5 2.0 30 1.5 20 1.0 10 0.5 0 0.0 Source: Statistics Canada, Alberta Treasury Board and Finance, Budget 2019; e-estimate, f-forecast 16

Differential to remain wide until full market access achieved Oil Prices (US$/bbl) 120 WTI-WCS Differential WTI WCS 100 80 60 40 20 0 Source: Alberta Energy, Alberta Treasury Board and Finance; f-forecast 17

Pipeline capacity critical for expanding production Takeaway capacity* and Western Canadian crude oil production (kbpd) Rail Takeaway Capacity 7,000 Keystone XL Western Canada Demand and Pipeline Takeaway Capacity 6,000 Total Western Canada Crude Oil Production TMX 5,000 4,000 Line 3 commences (one year delay 3,000 2,000 Source: Alberta Energy, 18 * Includes crude-by-rail

Non-residential construction investment remains weak Year-over-year growth in nominal non-residential building construction by structure type (percentage Industrial Buildings points) Commercial Buildings 25 Institutional & Governmental Buildings 20 Non-Residential Construction (%) 15 10 5 0 -5 -10 -15 -20 Source: Statistics Canada 19

Engineering construction investment on the rise Business investment by asset (NSA) ($billions) 30 Non-Res Building Engineering Construction Machinery & Equipment Intellectual Property 25 20 15 10 5 0 Source: Statistics Canada 20

Growth in contractor prices slowing Year-over-year growth in non-residential building construction price index and selected input prices Alberta Non-Residential Construction Price Index* (left) (%) (%) 4 40 Canadian Softwood Lumber Prices (right) 3 Canadian Steel Product Prices (right) 30 2 20 1 10 0 0 -1 -10 -2 -20 -3 -30 -4 -40 -5 -50 Source: Statistics Canada 21 * Alberta is the average of Calgary and Edmonton CMA

Non-energy sector a key driver of investment Change in private non-residential investment in Alberta ($billion) Other Mining 6 Other Industries 5 Oil & Gas Extraction 4 Total 3 2 1 0 -1 -2 -3 -4 -5 2017 2018 2019e 2020f 2021f 2022f 2023f Source: Statistics Canada, Haver Analytics, Alberta Treasury Board and Finance; e-estimate, f-forecast 22

Employment gains concentrated in private and service sector positions 2019 change in employment (%) 3.0 4 2.0 1.3 2 0.5 0.2 0 -2 1.6 -1.8 -4 -6 -8 -10 -10.2 -12 Sources: Statistics Canada 23

Employment recovery remains uneven across regions Seasonal adjusted employment indexed to peak month, by region (Peak=100) Other* Calgary Wood Buffalo-Cold Lake** Edmonton 104 100 96 92 88 Source: Statistics Canada, Haver Analytics, TBF *Other includes Red Deer, Camrose-Drumheller, and Banff-Jasper-Rocky Mountain 24 House, Athabasca-Grande Prairie-Peace River ** No LFS data reported for Wood Buffalo-Cold Lake from June-September 2017

Unemployment rate to ease gradually Labour Market Indicators (%) Unemployment Rate 10 Labour Force* Growth Employment Growth 8 6 4 2 0 -2 Sources: Statistics Canada, Haver Analytics and Alberta Treasury Board and Finance; e-estimate, f-forecast 25 *The number of people working or looking for work.

Earnings picking up Alberta average weekly earnings (y/y % change) 8 Total Goods sector Service sector 6 4 2 0 -2 -4 -6 Sources: Statistics Canada 26

Natural increase and immigration drive population growth Annual Change in the Alberta Population by Component (thousands) Natural Increase (Left) Net International (Left) (%) 120 3.0 Net Interprovincial (Left) Population Growth (Right) 80 2.0 40 1.0 0 0.0 -40 -1.0 Sources: Statistics Canada, Haver Analytics and Alberta Treasury Board and Finance; e-estimate, f-forecast 27

Albertans keeping a lid on spending Retail sales in Alberta (%) ($ billion) 30 7.2 Year-over-year growth (Left) Retail sales (Right) 6.9 20 6.6 10 6.3 0 6.0 -10 5.7 Sources: Statistics Canada 28

Services propping up consumer spending Contribution to Change in Alberta Real Household Consumption (percentage points) 5 Services Durable Goods Semi and Non-Durable Goods Household Consumption 4 3 2 1 0 -1 -2 2014 2015 2016 2017 2018e 2019f 2020f 2021f 2022f 2023f Source: Statistics Canada, Haver Analytics and Alberta Treasury Board and Finance; e-estimate, f-forecast 29

Housing activity rebounds from poor start to 2019 Annualized Alberta housing start & existing home sales (three-month moving average) (Thousands) 80 Housing starts Existing home sales 70 60 50 40 30 20 10 0 Source: Canadian Real Estate Association, Canada Mortgage and Housing Corporation 30

Housing starts to rise gradually Alberta Housing Starts by Type (Units) 45 Single and Semis Row and Apartments Forecast 40 35 30 25 20 15 10 5 0 Source: Canada Mortgage and Housing Corporation, Haver Analytics and Alberta Treasury Board and Finance; f-forecast 31

Risks elevated for Alberta economy Alberta Real GDP Growth (%) 5 Global Recession No Market Access 4 Baseline 3 High 2 1 0 -1 -2 2018 2019f 2020f 2021f 2022f 2023f Source: Statistics Canada and Alberta Treasury Board and Finance; f-forecast 32