While Alberta’s economy faces headwinds, the Trans Mountain pipeline expansion and increasing energy investment have provided boosts, says an economist.
Alex Kotsopoulos, RSM Canada’s vice-president for projects and economics, was in Red Deer on Wednesday to give the business community his take on the economic prospects and challenges in a session hosted by the Red Deer & District Chamber of Commerce.
On Tuesday, Alberta got some much-anticipated good news when the Federal Court of Appeal’s three judges unanimously ruled to dismiss four challenges by First Nations in B.C. after the Trans Mountain pipeline expansion was approved for the second time.
The pipeline would triple the amount of northern Alberta bitumen that can be transported to the West Coast and on to international markets.
Oil markets responded favourably, with the gap between the price for the benchmark West Texas Intermediate oil and Western Canadian Select narrowing significantly. Sharp discounts in the price for Western Canadian Select have hurt the province’s oil industry and its economy.
“The announcement of the Trans Mountain pipeline expansion has already moved the needle in some respects,” said Kotsopoulos, whose Toronto-based company, which has offices in Edmonton, Calgary and Red Deer, provides global audit, tax and consulting services.
Whether it’s a blip or a sign of longer-term confidence will not be known until later, but it is some positive news, said Kotsopoulos.
“Plus, there has actually also been an uptick in capital expenditures in the oil and gas sector, the first in four or five years.
The headwinds facing Alberta reflect the challenges most face in a global economy, he said.
Economies are being affected by slowing China and U.S. growth and an ongoing manufacturing slowdown.
“In addition to that, we have a China-U.S. trade war that is still very much alive, despite the phase one agreement, and there is increased uncertainty as a result,” he said.
China has promised to buy more U.S. agricultural products, which has raised concerns that commitment might come at the expense of Canadian exports. Alberta’s canola farmers have already been hit hard by a Chinese ban on their products that has yet to be resolved.
The coronavirus has already had an impact on oil prices, and how big a drag it could create on the world economy depends a lot on how China and the international community responds.
“Estimates range pretty substantially, from 0.3 per cent to 1.6 per cent of a decline in China’s economic growth. It’s still a little early to tell what the exact impact is going to be.
“The impact could be quite large to the Chinese economy and, of course, that’s going to reverberate through the world economy.”
How closely linked Alberta and central Alberta is to the world economy was a key theme of this talk, he said.
“The world is very interconnected. What happens in one part of the world has an impact on another part of the world.”
Kotsopoulos said there is a lot of capital on the sidelines as investors watch global economics closely. If some of the economic uncertainty dissipates, it is hoped that money can be used to boost growth numbers.