It only happens four times a year, so we’re devoting this week’s Seven to our latest Economic Outlook. We also do a quick flyover of other events of the week and our Chart of the Week speaks to changing fears.

Don’t have time to read the full outlook report? Here it is in 10 themes.

1. A softish landing for Canada

It’s not mission accomplished, but the tide is turning in the inflation battle. Interest rates have fallen and we expect the Bank of Canada to keep cutting over the next year. After narrowly escaping a technical recession, the Canadian economy is expected to gather some steam in early 2025 as short-term borrowing costs ease. We’re expecting real GDP growth to improve from 1.2% this year to 2% next year.

A soft landing is too strong of a word given rising unemployment and falling per capita GDP. We’re calling it ‘softish’. 

2. Repairs needed on landing

After-shocks of the inflation battle will linger even after the landing. Longer-term, Canada is contending with an erosion in labour productivity, particularly relative to the United States—a problem that lower interest rates alone cannot fix. Even as short-term interest rates settle lower, housing affordability will remain a challenge in Canada.

3. The Bank of Canada will keep cutting

What a difference a year makes. After a prolonged bout of rapid price increases, inflation has held in the 1-3% control range since January and the Bank of Canada has shifted its focus more on the downside risks to growth.

We believe systems are clear for the Bank of Canada to keep its rate cutting streak alive: core inflation readings have moderated, a softer labour market will ease pressure on wages, and shelter costs (the main problem area) are rising at a slower rate. We now see the policy rate at 2.75% by mid-2025.

4. Consumers will remain cautious

On the ground, in Alberta and across Canada, consumers will still feel the pinch from past inflation and devote more of their income to servicing debt. Massive labour force gains will keep the unemployment rate elevated, before easing next year.

Sure inflation has fallen to 2%, but people aren’t celebrating just yet. Prices are 18% higher than four years prior as shown in the chart—that’s what consumers are ‘feeling’.

6. People will keep coming, but at a slower rate

Population growth in Alberta continues to run hot. There were 4.89 million Albertans at last tally (July 1, 2024), a 204,000 increase in just a one-year period.

It’s jobs, but also relatively affordable housing, that are drawing folks from the rest of Canada—and they are primarily young households.

The population will go from red hot to very warm, moderating from 4.4% growth in 2024 to 2.8% in 2025 and 1.8% in 2026, driven by a slowdown in temporary residents and, to a lesser extent, interprovincial migrants.

Admittedly, we’ve underestimated  population growth in the past. The population numbers for Alberta have been staggering, and there’s always a chance they could prove more persistent than we’re forecasting.

7. Energy sector providing a boost, but in a different way

The energy sector is also fueling growth, but not through the normal upstream oil and gas investment channel.

This time it’s production. New market access is enabling significant oil production gains, propelling exports even as oil and gas investment remains fairly steady.

Another interesting development is the movement downstream. More investments are taking place in petrochemicals, hydrogen and biofuels. And natural gas prospects will improve with new LNG export capacity coming online on the West Coast and rising industrial and power generation demand.

All this with a greater focus on emissions reductions, with new carbon capture and storage projects announced.

8. Growth is broadening

That diversification door has cracked open a little more. Growth is occurring across a broad range of sectors.

Within the broader energy sector, we highlight hydrogen, propane, petrochemicals and biofuels, and LNG opportunities.

Outside the energy sector, we’re seeing growth in sectors like technology, food manufacturing and aviation.

9. Alberta to be among Canada’s economic growth leaders

It’s been a long road, but the Alberta economy is returning to being a growth leader. A turning point was 2022, when the province returned to its 2014 level of real GDP.

Our forecast of 2.5% real GDP growth for 2024 far exceeds our national forecast of 1.2%, and puts it near the top of the provincial growth leaderboard. The pick up to 2.8% next year is also faster than the 2% we’re expecting nationally.

Even still, with record population growth, output and employment has struggled to keep pace. We don’t see an improvement in GDP per capita until next year, and the unemployment rate is expected to stay relatively elevated at 6.8% next year. 

10. Finding a home on the forecast range

Of course, we don’t have a crystal ball. We put a lot into our forecast and treat it seriously. That includes an Alberta macroeconomic model, current analysis, and—perhaps most important—talking to people on the ground (I usually get more insight networking and speaking at conferences and events than from a day in the office).

But even with all these tools, the forecasting business is tricky. It can be a humbling experience.

Yet the stakes are high and it’s still worth the effort.

To account for inherent uncertainty, ATB Economics for the last couple years has been publishing low and high scenarios to accompany our base case.

In other news…

OK, our outlook wasn’t the only thing that happened this week.

In the Middle East the war has escalated, putting upward pressure on WTI oil prices back near US$75/bbl. This comes after demand fears in China and talk of Saudi Arabia wanting to regain market share pushed prices below US$70 just last week. Our forecast is for WTI to average US$76 this year (YTD we’re at US$78).

In the U.S., the job numbers were shockingly good this morning with 254K non-farm payroll jobs added and the unemployment falling to 4.1%. That put’s the Sahm recession indicator back on the line after breaching the rule the last two months.

Is this too good to be true? U.S. inflation has fallen (latest August reading 2.5% y/y) yet the economy won’t quit despite higher interest rates. And the U.S. Federal Reserve has already started lowering rates with a 50-basis point cut last month.

If Canada is landing ‘softish’, what does that make the U.S. landing? No landing at all it seems for now. We assume that the U.S. economy will eventually cool down, but that’s been the story for a long time—the big slowdown is just around the corner. That corner just keeps getting further and further away.

Next Week:  Labour Force Friday!

It’s always dangerous to release an economic outlook the day before new jobs data arrive. We dodged a bullet, as the Labour Force Survey results don’t come out until next Friday (it’s usually the first Friday of the month).

We’re looking for a couple things in next week's report for Canada. First, any sign that population growth—and hence labour force growth—is cooling. At the current rate of economic growth and job creation, the unemployment rate will keep rising. Second, will private sector job growth pick up? Over half of the recent year-over-year job growth in Canada has been in the public sector.  We think that another soft jobs and inflation report paves the way for a 50-basis point Bank of Canada cut later this month.

In Alberta, the challenge of adding enough jobs to keep pace with population is even more acute. The population here is growing more than a full percentage point faster than the national average. In our latest forecast, we see the unemployment rate staying above 7% before easing to an average of 6.8% next year. 

Next Week:  The Calgary Economic Development 2025 Economic Outlook Conference

I’ll be presenting our latest forecast at the Calgary Economic Development 2025 Economic Outlook on October 8. More on that in next week’s Seven!

Interesting Fact…Slicing up the oil production pie

In our latest outlook, a big part of Alberta’s GDP growth this year is rising oil production, facilitated by the commissioning of TMX.

Oil production has been a key part of the Alberta economy since the Dingman No. 1 well struck oil in 1914, with production more than doubling since 2010 due to oil sands expansion. Alberta is not the only province that produces oil, but it is by far the largest. Canada produced about 5.1 million bbl/day in crude oil and equivalent in 2023 according to the Canada Energy Regulator, with the vast majority from Alberta at 84%, followed by Saskatchewan (9%) and Newfoundland (4%).

Chart of the Week: New day, new worries

In the second quarter, the Bank of Canada asked businesses what they were worried about. The data show an interesting trend over the past three years: fewer concerns about labour shortages and supply chain issues, but more concerns about ‘uncertainty’,  policy/regulations, credit and sales. We think the greatest risk is geopolitical events, particularly the increased threat of protectionism and ongoing wars, which help inform our low/high scenarios.

Answer to the previous trivia question: The Sabres and Devils will begin the 2024-25 NHL regular season by facing off in a pair of games in Prague.

Today’s trivia question: Who wrote The General Theory of Employment, Interest, and Money?