Powering what's next
Drafting through headwinds: insights for Alberta in 2023
Mark Parsons, ATB’s Chief Economist, discusses the economic headwinds and the factors helping Alberta draft through these challenges.
By ATB Financial 12 June 2023 5 min read
Mark Parsons, ATB VP and Chief Economist, kicked off the 2023 ATB Business Summit with ATB’s economic retrospective and forecast.
According to Parsons, 2022 was a bounce-back year when “Alberta got its mojo back,”. “So you say, ‘Mark, well, that was just all prices.’ It wasn’t all prices. We also increased production volume”, pointing to the province’s 5.1 per cent real GDP growth. Look at some of these numbers: $205 billion in merchandise exports. That’s a record. In fact, in July 2022, the value of domestic exports leaving Alberta for international markets exceeded that of Ontario. It wasn’t just energy, although energy is about three-quarters of our exports. Manufacturing shipments also jumped. Agriculture had a bounce-back year after the drought—they had $22 billion in farm cash receipts.”
On the people side, things improved as well. “Employment was way up. Unemployment dropped to 5.8 per cent. That’s 2.8 percentage points lower,” said Parsons.
The biggest headwind was inflation and interest rates. “We had this problem with inflation. Average wages didn’t keep up with inflation last year. So consumers really felt the bite from that last year and into this year.” The current Bank of Canada tightening cycle is the longest and fastest increase in interest rates since the early 1990s. Despite central banks in Canada and the US attempting to slow things down, we’ve yet to feel the full impact. “I don't think anyone, when talking about inflation, is going to use the word ‘transitory’ ever again.”
Alberta in the draft
In cycling, the laws of physics dictate that if you ride behind a group of cyclists, that draft effect can cut your drag by 40 per cent. Alberta is in the draft, Parsons noted, for two reasons: surging population growth and high-performing energy and agri-food sectors. While he forecasts that Alberta will grow much slower this year—approximately 2.4 per cent—it’s roughly double the rate of the national average. And it's primarily due to those two factors.
“The numbers have been truly remarkable,” Parsons said of the population surge. In Q3 2022, a record 52,582 people migrated to the province. He estimates that in 2023 (July to July), Alberta will see about 130,000 residents added through migration. In addition, about 20,000 more people are being added to the population every year through natural increases (births minus deaths), representing a larger percent contribution than in other provinces.
Source: Statistics Canada, ATB Economics. Last Obs. in 2022Q4.
There’s also great momentum in agri-food. “We saw big improvements last year coming off the drought year. Farmers had a much better year,” Parsons remarked. From Q1 2022 to Q1 2023, exports of agri-food products increased by 52 per cent. He anticipates there will be more activity in food manufacturing and food processing capacity to come.
The ripple effects of migration
This migration boom has a couple knock-on effects.
First, it helps keep us young. Parsons cited that 90 per cent of net migrants are under the age of 45 (for the general population, it’s 60 per cent). Alberta’s annual growth in the 20-to 34-year-old category is expected to grow at a much faster rate in Alberta than the national average over the next decade.
All those people setting up new homes, many in prime home-buying years, increases demand for housing. “Normally, household formation and housing starts have to go together.” Until the big migration spike, that ratio was holding together well. However, 2022 saw a huge discrepancy, with household formation far outpacing new housing starts. To satisfy the massive increase in household formation, Parsons believes that housing starts will rise again next year to 37,000 following a pullback in 2023.
Cautiously optimistic about oil and gas
Parsons believes investment is one of the things that will push Alberta’s growth above the national average, with energy investment being a player. “We think—and some people might think I'm being conservative here because there are higher estimates—that capex in oil and gas is going to go up 10 per cent,” he said, highlighting the Trans Mountain Expansion coming online next year as one positive development. “This is big news.”
Citing an ATB Capital Markets survey, he noted there’s cautious optimism for the oil and gas sector—despite decreasing investment over the last decade. In 2014, the share of business investment coming directly from oil and gas was over 60 per cent. For 2024, the forecast is just over 40 per cent. “It’s more diversified levels of investment at a lower level, but still we’re growing and that's going to add to economic activity.”
Consumers will tighten their belts
Despite consumers feeling the bite of inflation, it hasn’t stopped them from spending. Retail sales in the province have been on a steady increase, with January 2023 topping out at about $8.7 billion.
However, those big increases are likely about to stop. “Consumers are going to take a bit of a breather.” ATB’s consumer tracker index, measuring the value of transactions on ATB Mastercard, indicates that spending is levelling off. “We think that interest costs are going to start to bite. We expect a slowdown in consumer spending in the second half and going into next year.”
From recovery to expansion
“It’s been a very long road to recovery,” said Parsons. “But now we’re there and we’re in expansion mode.” He forecasts 2.4 per cent real GDP for 2023 and 2.2 per cent for 2024. Employment growth is estimated to rise 2.8 per cent this year and 1.6 per cent after that. Unemployment will hold steady around current levels: 6.1 per cent in 2023 and average 5.9 per cent in 2024, with job growth being matched by people entering the labour force.
Source: Statistics Canada, ATB Economics.
Keep your eye on …
As Alberta drafts into the future, there are lots of exciting things to watch for, Parsons noted. Growth areas include hydrogen, food processing, tech, cleantech and carbon capture and storage. Renewables are booming, tourism is coming back, and the aviation sector is expanding.
Decarbonization will continue to be a major theme in Alberta’s story. As will energy security, which the war in Ukraine has been a reminder of. “The world will continue to demand responsibly produced energy and food,” said Parsons. “We have those resources in abundance.”
Parsons noted that risks are elevated, and as a trade-exposed and resource-intensive economy, it’s best to plan for scenarios. ATB economics has for the first time published low and high scenarios to accompany its base case.
See the full report here.
About the speaker
Mark Parsons is Vice President and Chief Economist at ATB Financial. Over his 20-year career, Mark has served in key senior economic roles, including as Chief Economist and Assistant Deputy Minister of Economics and Fiscal Policy at Alberta Treasury Board and Finance. He has provided leadership in a range of areas, including economic analysis and forecasting, fiscal analysis and data analytics. Mark previously worked as a senior economist at PwC and as an economist at the Department of Finance Canada. Mark holds a Masters degree in economics from the University of Alberta.
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