Alberta: The light at the end of the tunnel appears closer than before
The full recovery in Alberta still has some way to go. Even if output grows as economists expect in 2017, the province's GDP would remain about 5 percent lower than its peak in 2014, before oil prices collapsed. It is definitely a stronger bounce back than was expected.
Canadian economy grows in May
Growth in Canadian output beat all forecasts in May as oil production rebounded and GDP rose 0.6 percent from the previous month, beating estimates of a 0.2 percent rise. Growth in the oil, gas and mining industry accounted for about two-thirds of the increase. On an annual basis, the 4.6 percent expansion is the fastest in almost 17 years. The monthly expansion for May is the seventh in a row and is the longest such streak since 2010.
Canada is well on track for 3.5 percent second-quarter growth, which will probably keep it atop the G7 rankings and may bring the economy to full output even before the Bank of Canada's target of the end of this year.
Alberta resurging strongly
According to Bloomberg, GDP in Alberta will rise by 2.9 percent this year, up from an April estimate of 2.5 percent. It's a huge comeback from Alberta's last place finish in each of the last two years when oil prices plummeted below $50 a barrel, triggering layoffs and an investment freeze that shrank GDP by about 4 percent. Factory sales in Alberta have climbed 18 percent in May from a year earlier. Retail sales are up 9 percent as unemployment fell to 7.4 percent in June from a peak of 9 percent in November, and as government deficit spending gives household budgets a boost.
My two cents
The full recovery in Alberta still has some way to go. Even if output grows as economists expect in 2017, the province's GDP would remain about 5 percent lower than its peak in 2014, before oil prices collapsed. It is definitely a stronger bounce back than was expected. Alberta's growth prospects seem to be more stable now as companies have made some progress in competing with lower oil prices south of the border. The oil and gas extraction subsector expanded 7.6%, with non-conventional oil extraction rising 13% following two months of declines.
The strong GDP data provides more evidence to the BoC to raise rates. With the oil and gas companies coming to terms with $50 oil, the onus on them will now be to cut costs aggressively to counter their debt load while looking for avenues of growth. A key consideration for Alberta will be the jobless rate which is yet to gain steam and recover. While the boom times are still far away, for now Albertans can throw a party and celebrate the good news.