ATB upgrades economic forecast for Alberta as vaccine rollout drives recovery

ATB upgrades economic forecast for Alberta as vaccine rollout drives recovery
The financial institution and Crown corporation said Thursday that it now predicts economic growth of 5.0 per cent for the year, up from the 4.1 per cent forecast of just three months ago.

The biggest factors driving the more optimistic forecast are higher-than-expected oil prices and the pace of the global recovery from the COVID-19 pandemic. In Alberta, the province has announced a reopening plan that could see most public health restrictions lifted by early July.

“Both here and around the world . . . the vaccine rollout has absolutely changed the game,” Rob Roach, deputy chief economist for ATB Financial, said in an interview. “We were anticipating this, but it’s been that much faster than we expected.”

Other positive indicators include housing starts, which were 24 per cent higher in Alberta over the first four months of 2021 than the same period last year, and the fact that the household savings rate in Canada jumped from 1.3 per cent of disposable income in 2019 to 14.9 per cent in 2020. While it’s unclear how those savings will be used, Roach said it’s a safe bet that at least some of that money will be spent in local businesses as the economy reopens.

ATB’s latest forecast isn’t all good news. Fresh data from Statistics Canada confirms that the economic contraction in Alberta in 2020 was actually more severe than predicted (8.2 per cent versus ATB’s original forecast of 7.1 per cent). That means, Roach said, that in spite of a faster-than-anticipated recovery, it will still take until 2023 for the Alberta economy to return to pre-pandemic levels.

“The hole we’re filling in is a lot deeper,” he said.

ATB’s projections hinge on vaccine distribution continuing at a strong pace, preventing a fourth wave of COVID-19 infections. Even if the goes off without a hitch, ATB said the pandemic will continue to disrupt economic activity both here and in other places. For example, it remains unclear when international tourism will return to pre-pandemic levels and patterns .

Roach also pointed out that the damage inflicted by the pandemic on many businesses will take time to heal, and some businesses did not survive at all. The number of active businesses in the province was 2.1 per cent lower in February 2021 than 12 months earlier. That compounds an overall downward trend that started with the recession of 2015-16 — the number of active businesses in Alberta was down 7.1 per cent going into the pandemic compared with five years earlier.

In the past, Roach said healthy oil prices have typically unleashed a burst of capital spending in the oilpatch that then spilled over to boost other sectors of the economy. However, he said even with current forecasts pegging the average benchmark WTI price at around US$60 this year, capital investment by the oil and gas sector is expected to remain muted due to ongoing pipeline capacity challenges and the need for companies to focus on debt reduction and repairing their balance sheets.

That is one reason employment levels in the province are not expected to bounce back quickly. While employment levels in Alberta have improved compared to the first months of the pandemic, a relatively high unemployment rate going into the pandemic (7.5 per cent as of February 2020) combined with pent-up demand for jobs will likely keep the jobless rate elevated in the near-term, he said.

“We’re still going to see some high unemployment,” Roach said. “It will get better, and it might wobble up and down a bit, but it’s still going to stay relatively high.”
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