Alberta's oil helps offset interest rate ramifications: report

Report outlines provincial economic forecasts, which is expected to be buoyed by oil production while “interest rate-sensitive” provinces may struggle

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Alberta, and other oil-producing provinces, are well-positioned to ride out the woes of the next few economic quarters compared to “interest-rate sensitive” provinces, according to a recent report from Desjardins.

“Alberta’s economy looks relatively good,” said Marc Desormeaux, principal economist at Desjardins.

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Recently, Desjardins released a provincial outlook report that examines the health of provincial economies. The report looks at factors including GDP, employment rate and inflation rate, among others. Desjardins concluded that Alberta’s oil production should help it over the next few quarters.

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There are several key elements to understanding the health of provincial economies and economists will often look at different variables. While Canada’s economy has struggled as of late, it has, thus far, avoided recession status.

In order to be considered a recession, the economy would need to have two consecutive quarters with negative GDP growth, which Canada has managed to avoid.

But just because the country isn’t in an official recession, doesn’t mean things are looking good.

The Desjardins report stated GDP per capita, which is the “broadest measure of our standard of living,” has fallen for six consecutive quarters. That means that although the economy may not technically be in a recession, Desjardins warns that the next few quarters could “feel” like one for Canadians.

Desormeaux said Canada hasn’t had a period like this since the pandemic and points to underlying weakness in the Canadian economy. When the Bank of Canada rang the alarm on Canada’s lagging productivity, it pointed to several areas where the country could improve, including better labour composition, growing Canada’s small and medium-sized businesses, and increasing competition.

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Albertans may be insulated to the worst of the economic forecast due in large part to the makeup of the economy, Desormeaux said. In provinces like Ontario and British Columbia, industries like real estate, residential construction, or financial services account for a greater portion of the GDP. The report referred to those economies as interest-rate sensitive provinces. Consequently, with higher interest rates, activity in those sectors have slowed, which has taken a toll on those economies.

“There’s not as much exposure to higher interest rates in Alberta because consumers in Alberta are less indebted and housing doesn’t play as large a share of the economy,” said Desormeaux.

With the Trans Mountain pipeline expansion now in operation, Alberta’s oil sector will provide an even bigger boost to the economy.

Finally, it wouldn’t be a 2024 Alberta economy story without mentioning the effects of Canada’s high population growth. Alberta’s ongoing population growth has had two effects that Desormeaux pointed to.

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“Strong population growth is helping to offset the drag from higher interest rates in Alberta.”

First, the influx of young people to Alberta looking to buy homes runs counter to the national trend, where real estate has slowed due in large part to high interest rates. Since Alberta’s housing market is relatively more affordable compared to the rest of the country, newcomers are still purchasing homes despite the higher interest rates.

Second, Desormeaux said Alberta’s population growth isn’t tied to non-permanent residents, which makes the economy more resilient as the federal policy moves away from reliance on non-permanent workers. The report suggests that Ontario and B.C. are likely to be hit the hardest by the non-permanent worker shifts.

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Twitter/X: @ZacharyDelaney

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