Varcoe: Alberta’s economic growth to hit ‘speed bump’ in 2024, but still remain among country’s leaders

Heading into a new year brings a fresh outlook — and new challenges — for Alberta business operators.

Even with higher interest rates and questions about the Canadian economy, there are still reasons for optimism as 2024 approaches for business operators such as Mogens Smed, founder of Calgary-based construction technology company Falkbuilt Ltd.

The company, which has expanded from six to 540 employees since it was formed in 2019, has watched its business conditions improve from a year earlier, when the economy was still coming out of the pandemic.

“We saw a lot of things that we thought would be coming back by 2023 that have absolutely pushed into 2024 — but 2024 is looking real strong right now,” Smed said Wednesday.

“We will certainly be hiring at least another 50 or 60 people in the next six to nine months. No question about it.”

But what does the new year hold for Alberta’s mercurial economy, inflation-weary consumers and battle-hardened businesses?

That’s a question many business leaders and experts are contemplating with less than three weeks remaining in 2023.

Three new economic forecasts released over the past week paint a complicated picture of the Alberta economy, although a remarkably consistent outlook is anticipated for 2024.

A slowdown is likely, but it’s not a full stop on economic expansion, according to reports by RBC, Alberta Central and ATB Financial.

Alberta is expected to see among the strongest growth in the country next year.

Yet, the outlooks also caution that the province’s economy is decelerating with several challenges ahead, including the ongoing squeeze from higher borrowing costs and the potential for a hard landing for the Canadian economy.

With oil prices closing below US$70 a barrel on Wednesday and benchmark U.S. natural gas prices trading at $2.34 per million British thermal units, volatility also continues to hit the province’s largest sector.

“We see Alberta continue to outperform in the current environment. We’re calling it a speed bump in the faster lane,” ATB chief economist Mark Parsons said in an interview.

“We have higher interest rates going to next year . . . we see some weakness on the consumer side, but continued strength in other areas.”

ATB forecasts the provincial economy will grow by 2.1 per cent next year, down from 2.7 per cent expected in 2023.

After leading the country in economic growth in 2023, Alberta’s gross domestic product (GDP) will expand by 1.7 per cent next year, according to RBC Economics.

And Alberta Central is projecting the province’s economic growth will slow to 1.8 per cent in ’24.

Continued population growth and robust energy prices should see the province outpace its counterparts, said Alberta Central chief economist Charles St-Arnaud.

“Alberta generally should do better than the rest of the country, but the question is: Where is the rest of the country?” he added.

“If Canada as a whole has a hard landing, then Alberta will have a hard time to escape that.”

Experts point to the economic tailwinds being generated by international and interprovincial migration, and solid commodity prices.

The province’s population increased by more than four per cent, or 184,000 people, for the 12 months ending in July, which is the highest rate recorded since the early 1980s, although it is expected to slow in 2024.

“A flourishing population, alone, won’t be enough to shield Alberta’s economy from moderating further in 2024,” the RBC report states.

RBC economist Rachel Battaglia points out that Alberta households remain heavily indebted compared to most other provinces, and there are signs consumers are responding to higher borrowing costs.

Retail sales per person are down from a year earlier, while Alberta’s “red-hot housing market has also shown early signs of cooling,” the bank states.

“We are still quite bullish on the Alberta forecast, but we are starting to see some of that weakness . . . so that’s why we have Alberta slowing down in 2024, before we have it ramping back up in 2025,” Battaglia said.

As usual, energy markets will be a big driver for investment in the province.

Global demand for oil and gas may slow in 2024 if the international economy weakens, although the startup of the Trans Mountain pipeline expansion next year is expected to shrink the price discount on Western Canadian Select heavy oil.

RBC is forecasting prices for benchmark West Texas Intermediate crude will average about US$78 a barrel next year, up slightly from this year’s level.

And there are other signs of strong capital investment, highlighted by Dow Inc.’s decision to begin construction next year on an $8.9-billion net-zero ethylene cracker and derivatives complex, to be built in Fort Saskatchewan.

“That’s a solid vote of confidence for Alberta to be attracting that kind of investment in this interest rate environment,” Battaglia added.

On the jobs front, ATB is expecting labour growth to cool to 1.8 per cent next year, while the unemployment rate inches up to 5.9 per cent.

Meanwhile, sentiment for business operators has been improving, despite concerns around the state of the national and global economies.

The latest quarterly survey by Statistics Canada on business conditions, conducted between October and early November, found 62 per cent of Calgary business respondents are hopeful about their company’s outlook for the next 12 months, up from 58 per cent a year earlier.

Fewer businesses say they’re seeing labour shortages compared with a year ago, although rising inflation and higher interest rates are obstacles, noted the Calgary Chamber of Commerce.

“Businesses are more optimistic,” said chamber CEO Deborah Yedlin.

“Whether it’s energy, agriculture or other natural resources . . . we’re not going to be as affected by economic challenges in other parts of the country because of what we have here.”

Chris Varcoe is a Calgary Herald columnist.

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