Recession? What recession? That’s not what John Rose sees.
Edmonton’s large public sector and diversified local economy will enable it to narrowly duck the oil-driven economic downturn that has slammed Calgary and other parts of the province this year, says Rose, the city’s chief economist.
When the final numbers are in, he figures the Edmonton economy will grow 0.7 per cent this year before edging up to the 1.5 per cent range in 2016. While that’s no reason for a parade, it’s not a disaster. It’s a message Rose badly wants to get out.
“When I’m talking to my colleagues out east they just assume we’re all crying the blues,” says Rose, who spent much of his career in Ontario before moving to Edmonton in 2010. “But Edmonton is going to get through this without too many scrapes or bruises, unlike Calgary.”
Rose, speaking Monday to an Edmonton Rotary Club audience, says Alberta’s capital city has continued to generate employment growth at a time when oilpatch job losses have skyrocketed. That growth is thanks partly to the city’s ongoing commercial and residential construction boom.
“We generated 3,000 full-time net new positions in the month of August. For that to happen at this point in an energy downturn is a remarkable statement of the diversity and resilience of the Edmonton economy,” he says.
“We’re at 5.5 per cent unemployment. We’re doing very well relatively speaking, particularly in comparison to Calgary. Their unemployment rate is now 6.6 per cent and rising. And it’s rising for the wrong reasons — they’re losing jobs.”
Edmonton’s housing market has also held up well, he says, despite a deluge of gloomy headlines in the national media about Alberta’s economic woes. The median home sales price in September was $357,000. That’s up three per cent over the previous year, despite a nine-per-cent drop in sales.
“Three per cent is respectable in any given year. Now, I’m not expecting that to maintain itself. As we get into 2016, the housing market will get increasingly sloppy and we’ll probably see zero-per-cent growth (in median prices). But I’m not anticipating any kind of severe crash,” he says.
Rose’s outlook is predicated on gradually rising oil prices. He sees the price of benchmark grade West Texas Intermediate (WTI) light crude stabilizing in the $45 to $50US per barrel range by year’s end — it closed at $46.26 Monday — rising to an average of $54 in 2016 and $70 beyond that.
That’s roughly in line with the projections of most energy analysts, although some, such as Goldman Sachs, see more downside ahead.
The rout in crude prices, which have fallen by half in the past year, has forced energy companies to lay off tens of thousands of workers and slash capital spending programs. Much of that pain has been felt in places such as Fort McMurray, Nisku and the office towers of downtown Calgary.
A recent report by a Calgary investment firm estimates that oilsands investment alone has plunged from a peak of $31 billion in 2013 to the $16 billion to $18 billion range this year, with little new spending on the horizon unless oil prices improve.
As a result, Rose expects Alberta’s economy overall to shrink 1.5 per cent this year before rebounding to modest growth of about two per cent in 2016. And if oil prices do get back to the $70 range over the next two or three years, Alberta’s economic growth should also pick up.
“We’re beginning to see what I would call some glimmers of hope, particularly in the North American energy marketplace,” says Rose, who spoke to the Journal before his presentation.
“It finally looks like U.S. production is levelling off, if not trending down a little bit. And both the International Energy Agency and OPEC (the Organization of Petroleum Exporting Countries) have slightly increased their estimates for global oil demand over the next couple of years,” he says.
“So those two factors combined will, I think, provide a floor for oil prices going into 2016 and then a bit of a gradual improvement after that.”
Rose is hardly ignoring the potential negatives. In the short term, he expects more “doom and gloom” stories over the final few months of 2015, as more layoffs push Edmonton’s jobless rate back up by year’s end.
Longer term, he has bigger worries. If oil prices don’t get back to at least $60 a barrel — a level he believes is necessary to justify further capital investment — Alberta’s continued economic growth is a big question mark, he says.
“This is my real concern, that without oil prices getting above $60 a barrel and ideally higher than that, we’re not going to see the kinds of incremental investment in new capacity — particularly in the oilsands — that were really driving Alberta’s economy,” he says.
“Energy will continue to play a very significant role in the provincial economy. But where is the growth going to come from? That’s always been related to incremental investment.”
COMPLIMENTS OF GARY LAMPHIER OF THE EDMONTON JOURNAL