BMO report says oil price differential impacts housing activity, commercial real estate and the labour market

Mario ToneguzziAlberta’s economy is softening alongside a weaker oil sector backdrop as real gross domestic product growth likely slowed to 2.4 per cent this year from 4.4 per cent in 2017, and should weaken further to 1.2 per cent in 2019,” says new report released on Wednesday by BMO Capital Markets.

The financial institution’s Provincial Monitor said weaker West Texas Intermediate oil prices and a wide Western Canada Select differential will likely temper capital spending plans, while mandated production cuts will weigh on output.

“Longer term, with oilsands production still on the rise and as past projects/expansions reach completion, limited pipeline capacity will remain a pressing issue,” said the report. “We judge that recent developments in the oil market will cut roughly one percentage point from 2019 growth.

“The housing market remains weak after a prolonged correction that saw benchmark prices in Calgary fall six per cent from peak levels. Housing starts have found a footing, though well down from pre-shock levels. Commercial real estate, however, remains awash in supply with vacancy rates topping 25 per cent in Calgary’s downtown office segment.

The labour market is steady, with employment growth running around two per cent year over year. The jobless rate, however, has moved back above seven per cent alongside a jump in labour supply.”

Through 2016 and 2017, the province saw a wave of net interprovincial outflows as relative economic prospects improved in other regions and wage differentials, previously widely in Alberta’s favour, narrowed, said the report, adding that these flows appear to be balancing out now with growth rates across the country converging.

The report is forecasting employment growth of 1.7 per cent this year in the province followed by 0.8 per cent growth in 2019. But it’s forecasting the unemployment rate to rise from 6.8 per cent this year to 7.0 per cent next year.

It is also forecasting housing starts in Alberta to fall from 29,300 in 2017 to 28,400 this year and to 27,000 next year.


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