Todd Hirsch, chief economist for ATB Financial, recently told a crowd of about 100 people who attended a speaker series at the Sundre Elks Lodge that he anticipates five themes will play a significant role in Alberta’s ongoing economic evolution.
Pipelines and politics
Not a new topic, the issue surrounding the frustrating inability to get pipeline projects going for the past few years has been dominating headlines, he said.
“It’s now no longer about economics at all, it’s all politics all the time.”
Confessing he is no political expert, Hirsch said he does enjoy staying tuned into the discourse as well as observing the “political gamesmanship” between provincial governments such as Alberta and B.C, with “Ottawa sort of being dragged kicking and screaming into it.”
How proposed projects such as the controversial KinderMorgan Trans Mountain pipeline will pan out remains uncertain, but the hang-ups send a negative message to the international community, he said.
“If these projects prove to be incapable of moving forward, or if they’re dropped — that’s not my prediction — but if we’re unable to build these pipeline projects, it sends a message to the global investment community that we in Canada do not have our act together.”
Pipelines represent a crucial part of the provincial and national economy, and the fate of new projects will undoubtedly continue to be played out in the political arena, he said.
Growing household debt
Not necessarily a new subject, increasing household debt has been on the radar for several years, but levels continue to grow, he said.
“Even in 2014, Canadian households and Alberta households were at a record level of debt, it’s just that since 2014 that debt has continued to rise, and now in early 2018, we’re at an even higher level of debt.”
While it’s obviously preferable not to see the words “debt” and “record level” in the same sentence, Hirsch said there should be no cause for panic as most people are managing their debt loads.
“It won’t be a majority, but a small minority of households will find themselves unable to manage that debt,” he said, predicting a slight rise in the level of consumer insolvencies in the province.
International trade
All eyes are on NAFTA these days, and what is happening with Canada, the U.S. and Mexico with efforts to renegotiate the agreement, he said.
“I’ll tell you exactly where the NAFTA negotiations are going to go. If you can tell me precisely what Donald Trump is going to Tweet out tomorrow! Because love him or hate him, the guy has a very interesting leadership style.”
Regardless of whether the U.S. president is a “buffoon” or a “genius,” all of his contradicting messages mean that another nation’s negotiating team never quite knows what to expect and prepare accordingly, he said.
“It’s a really difficult spot for Canada and Mexico to be in with this constantly shifting negotiating strategy and these messages from the White House.”
He said someone south of the border would be hard pressed to find a sensible economist who would argue NAFTA has, on average, been bad for the U.S. In fact, he added, gains have, overall, been more favourable to America than Canada or Mexico.
“And Donald Trump knows this. That weakens our position as a country negotiating against the U.S., because they need us, but we need them in a much bigger way.”
With the U.S. accounting for some 80 per cent of Canada's exports, he said blowing out of proportion the fallout of a post-NAFTA trade environment would be easy. But in reality, he said tariffs of roughly six to eight per cent that previously were in place under World Trade Organization agreements would simply be reverted.
Nevertheless, he said the end of NAFTA would be a “distinct negative for the Canadian economy. But we don’t want to exaggerate this thinking that we are going to plunge into 10 years of recession, living in the dark, wandering around the wilderness. It wouldn’t be that bad.”
Meanwhile, he said trade with the European Union largely seems to get overlooked. Commerce with Canada's European counterparts might represent a mere fraction of the transactions with its southern neighbours, but opportunities to tap into new trade relationships across the Atlantic should be pursued — even if it means overcoming differences in business cultures, languages or times zones, he said.
“That’s sort of the problem with living next door to the U.S. It’s almost been too easy for us for the last 151 years. Anything we chop down or dig out of the soil or grow, they’ve been willing to buy.”
That hasn’t changed, yet he said Canada should still be making a more concerted effort to expand international trade.
Oil and gas
“We all know that this is the dog that wags an awful lot of tails in this province,” he said.
Technically only a minority of Albertans are actually employed by the sector, but the majority feel the ripple effects when the industry suffers, he said.
So when in January 2016 the cost of oil crashed through the floor to less than $30 per barrel from well over $100 at West Texas Intermediate rates, he said “that single price drop was enough to hurl this whole provincial economy into two years of nasty recession.”
Since then, prices have modestly rebounded to regain roughly half of what was lost, now trading in the mid $65 range. While encouraging, he said it might be fuelling a false sense of hope among some in the province. After all, he added, Canadian producers do not get the same rate as Americans do; there is a different benchmark for our heavier crude, and its rate has flattened out with no indication of making substantial gains any time soon.
So despite some restored stability in Alberta’s energy sector, the industry has not produced much growth in employment or new investments, he said, adding the role of oil and gas in this province is evolving.
“When oil prices were better, I would have described the energy sector as the engine of our economy…that was lifting everything in this province forward.”
Now, he said the industry has become more of Alberta’s economic “backbone,” which of course remains crucial — anyone who has suffered serious back pain knows how challenging accomplishing the simplest task becomes.
“We want to make sure it’s in good shape, we want to take care of it. We have to recognize the importance of it. But we can no longer rely on it — not this year, not in the near future, anyway — to produce a lot of the growth that we’ve become very used to in this province.”
Labour market
As technology continues to make new strides towards automation and artificial intelligence, Hirsch said there are understandably concerns about job losses.
A report from the Conference Board of Canada last year suggested that by 2040, about 40 per cent of jobs in the country could be affected by automation.
However, “affected” is not the same as eliminated, and in some cases could be a good thing, he said. There are benefits of working with better equipment or machinery, which can make people more productive and companies more profitable, he said.
But job displacement is as inevitable in the coming years and decades as it has been over the past three centuries of Western civilization’s expansion since the Industrial Revolution, he said.
“This is really nothing new.”
When new breakthrough innovations come along, industries are transformed and revitalized to become more productive. The transition tends to cost some jobs, but also yields new industries and opportunities for adaptable, can-do people, of whom Alberta is in no short supply, he said.
“We do have a very entrepreneurial spirit and culture in this province and that’s not just a mythology that we tell ourselves in Alberta. Empirical data and statistical evidence measures this, (and) points to this province as being among the most entrepreneurial places on earth,” he said.
“If we’re smart about it, there are going to be new industries that come up, with whole new jobs, whole new sectors and opportunities that don't exist today.”
Wrapping up his presentation, the economist said he anticipates continued growth in Alberta this year, which compared with past booms will feel sluggish.
