Alberta’s Economy in 2014: What’s Next for Wild Rose Country?

By Todd Hirsch

There’s been no question that economic momentum in Canada has swung decidedly towards the Prairies, with Alberta near the top end of the growth pack over the last few years. Will that pattern hold up this year? Where will energy prices and other sectors be moving in 2014, and how will Alberta’s economy perform?

Oil and gas are still the dogs that wag an awful lot of tails in Alberta—so many businesses are either directly or indirectly tied to the price of energy. Natural gas prices have been mired in the mid- $US3.00/mmBtu range for much of the past year, a discouragingly low price level for most producers. The reasons for low prices haven’t changed: still too much natural gas coming out of the U.S. shale deposits, coupled with feeble American demand. Look for gas prices in 2014 to remain in this holding pattern.

Crude oil, however, has been on a bit more of an up-and-down rollercoaster—and unfortunately prices were on the down side in late 2013. West Texas Intermediate crude wallowed in the low $US 90/barrel range in early December, compared to prices well above $US 100 in the first half of the year. On top of that, the discount for western Canadian—sometimes referred to as the “bitumen bubble”—has widened once again. All of this has left Alberta producers with rather disappointing prices. It’s difficult to say how long the current discount will remain because so much depends on the very tight supply conditions into U.S. refineries and pipelines. But even with softer prices, oil producers will probably find 2014 to be at least a “so-so” year—not great, but not a disaster either.

Better news for Alberta’s economy is cropping up from other sectors. Agriculture is coming on strong once again—and even though grain and oilseed prices are no longer at record highs, the 2013 harvest was one of the best ever. That will carry through into strong farm income next year. Livestock is taking a bit of a hit, however, especially because of the “COOL” (Country of Origin Labelling) legislation in the U.S. That will act as a trade inhibitor and push Canadian cattle prices lower.

Alberta’s provincial government has been struggling to return to a balanced budget position, mostly because of falling resource revenues and higher spending demands. But in its most recent fiscal update in November, the province is now forecasting a modest surplus for the fiscal year 2013-14 (although the province concedes that flood relief and rebuilding will still add to some expenses). The bottom line: the fiscal situation has improved, and that could bode well for the spring 2014 budget.

Probably the biggest factor in 2014 will be population growth. Alberta is riding the inter-provincial migration boom once again; not since 2006 has there been such a steady flow of job seekers to the province. And with unemployment rates remaining in the mid-4% range, 2014 is almost certain to see the inflow continue. Population growth is one of the most compelling factors lifting Alberta’s economy as it tends to be self-perpetuating—more people means higher demand for housing and personal services, which means more jobs, which entices more job seekers to come… it is a virtuous circle that will continue to lift Alberta this year.

The other noteworthy spark is the exceptionally high wages and disposable income in Alberta. At nearly 20% above the national average, weekly earnings in the province continue to boost retail sales, restaurant and bar receipts, and housing prices—the first two of which were at record highs at the end of 2013. All of these should continue to move higher in 2014.

Overall, Alberta (along with Saskatchewan) will once again be the growth leaders in 2014. Even if oil prices are only decent—and natural gas prices remain in the cellar—there is sufficient momentum in Alberta’s economy to keep things humming along quite nicely. Indeed, real GDP growth is likely to pick up just a bit, from about 3.0 per cent in 2013 to 3.5 per

Todd Hirsch joined ATB Financial in May 2007 as Senior Economist where he provides economic information and intelligence to the various lines of business at ATB. He also tracks current developments in Alberta’s and North America’s economy and delivers presentations to both internal and external audiences.