A faster than expected rollout of the vaccine led ATB Financial to raise its economic forecast for Alberta.
The financial institution and state-owned company said Thursday they now forecast economic growth of 5.0% for the year, down from 4.1% just three months ago.
The main factors behind the more optimistic forecasts 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 plan to reopen that could see most public health restrictions lifted by early July.
“Both here and around the world… The roll-out of the vaccine has absolutely been a game-changer,” Rob Roach, deputy chief economist at ATB Financial, said in an interview. “We expected this, but this was much faster than expected. ”
Other positive indicators include housing starts, which were 24% higher in Alberta in the first four months of 2021 than in the same period last year, and the fact that the household savings rate in Canada fell from 1.3% of disposable income in 2019 to 14.9% in 2020. While it’s not clear how these savings will be used, Roach said it’s a safe bet that less of that money would be spent on local businesses when the economy reopens.
Not all ATB’s latest forecasts are good news. New data from Statistics Canada confirms that the economic contraction in Alberta in 2020 was actually more severe than expected (8.2 percent compared to ATB’s original forecast of 7.1 percent). This means, Roach said, that despite a faster-than-expected recovery, it will still be until 2023 for the Alberta economy to return to pre-pandemic levels.
“The hole that we are filling is much deeper,” he said.
ATB projections depend on continued vaccine distribution at a sustained rate, preventing a fourth wave of COVID-19 infections. Even though Alberta’s summer reopening plan goes off without a hitch, ATB said the pandemic will continue to disrupt economic activity at home and abroad. For example, it is still unclear when international tourism will return to pre-pandemic levels and patterns.
Roach also pointed out that the damage the pandemic has inflicted on many businesses will take time to heal, and some businesses have not survived at all. The number of businesses operating in the province was 2.1% lower in February 2021 than 12 months earlier. This compounds an overall downward trend that began with the 2015-16 recession – the number of businesses operating in Alberta was down 7.1% before the pandemic compared to five years earlier.
In the past, Roach has said that healthy oil prices have usually triggered an explosion in capital spending in the oilfield which then spilled over to stimulate other sectors of the economy. However, he said, even with the current forecast setting the average benchmark price for WTI at around US $ 60 this year, capital investment in the oil and gas sector is expected to remain modest due to pipeline capacity issues. and the need for businesses to focus on debt reduction. and repairing their balance sheets.
This is one of the reasons employment levels in the province are not expected to rebound quickly. While employment levels in Alberta have improved from the first months of the pandemic, a relatively high pre-pandemic unemployment rate (7.5% in February 2020) combined with pent-up demand for jobs will likely maintain the high unemployment in the short term, he said.
“We’re still going to see high unemployment,” Roach said. “It’s going to get better, and it may wobble up and down a bit, but it’s still going to stay relatively high.”