Stability expected for Alberta economy
If the decline in Alberta’s growth rate this year is causing you grief, take heart. ATB Financial’s senior economist isn’t losing any sleep over it.
“Faster is not always better,” said Todd Hirsch, who was in Lacombe on Wednesday to speak at a Small Business Week event organized by the Lacombe and District Chamber of Commerce.
In fact, said Hirsch, the 5.2 per cent growth in real GDP that the province achieved in 2011 posed a danger of the economy becoming too hot and resurrecting pre-recession problems like acute labour shortages.
“You want faster growth if you’re Greece or California or Japan,” he explained. “But you don’t really want it if you’re Alberta.”
Hirsch expects the province’s “extremely stable” growth to continue in 2013, supported by its strong energy and agricultural sectors. Consumer confidence is high, he noted, with housing starts here now trending upward and July retail sales setting a record.
The key to this prosperity continuing rests with oil prices, said Hirsch. Instability in the Middle East will push them higher; a decline in the Chinese economy could pull them down.
“My best guess, however, is that we will see oil prices continue probably in that $85-$100US range for West Texas intermediate,” he said, forecasting that geopolitical problems will persist in the Middle East and the Chinese government will be able to use the arsenal of policy tools it still has at its disposal to stimulate that country’s economy.
The situation is not as rosy elsewhere in the world, said Hirsch.
The central banks in places like Europe, the United States, England and Japan have already lowered interest rates as far as they can, forcing them to turn to the “blunter policy tool” of quantitative easing — the practice of buying financial assets from commercial banks and other private institutions as a way to inject money into the economy.
“In the U.S., the (Federal Reserve) has now announced its third round of quantitative easing.”
Hirsch expects Europe’s economy to produce “heightened levels of anxiety” next year, while the U.S. economy will remain in a “stagnant holding pattern.”
“I’m not expecting the global economic situation to really perk up that much in 2013.”
Relief is being stalled by a lack of consensus on how to address the problems. In Europe, some countries are calling for austerity measures and others want increased spending in hopes of stimulating growth; in the United States, Democrats want to boost government revenues and spending, while Republicans favour the opposite.
“The reality is the solution is probably going to lie somewhere between the two visions,” said Hirsch.
Despite the encouraging economic performance in Alberta and Saskatchewan, Canada as a whole is plodding along at about a 1.8 per cent growth rate — comparable to its southern neighbour.
Hirsch explained that Ontario and Quebec manufacturers have been hurt by the high loonie and declining exports to the United States.
He anticipates that interest rates in Canada will remain close to their current low levels for some time.
“My best guess is that the Bank of Canada is just going to keep that rate at one per cent for probably another 12 to 18 months.”
Asked about the recall of beef processed at XL Foods in Brooks, Hirsch said the media’s use of the word “crisis” to describe the situation is unwarranted. The problem has been contained, he pointed out, and the recall shows that the system is working as it should.
He is concerned, however, that the situation could leave a lasting stain on the Alberta beef brand.
“The longer this goes on, the reputation of not only Alberta but Canadian cattle ranchers is at risk.”
Hirsch also responded to questions about the outlook for the Northern Gateway and Keystone XL pipeline projects.
“I think the Keystone XL will proceed, but I don’t think Northern Gateway will,” he said, stressing that this opinion is his and not ATB Financial’s.
Hirsch said the Northern Gateway debate is now being driven by political considerations and not economic or business ones.