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Inflation and interest rates to slow Alberta economic growth: ATB

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The oil and gas sector will continue to help Alberta’s economy outperform the rest of the country, according to ATB Financial, but there will still be some pain for Albertans in the year ahead.

The Crown corporation’s 2023 economic forecast, released Wednesday, suggests the province’s real GDP will fall from five to 2.8 per cent but will continue to outpace Canada as a whole, which could see a recession in the new year.

“We’re just trying to stress that there is this sort of push-pull, positive-negative,” said Rob Roach, deputy chief economist at ATB Financial. “It is way better to be in Alberta right now with this overall growth, but it doesn’t mean everything’s going great for everybody.”

Alberta has benefited from high oil prices over the course of 2021, resulting in higher revenues and pushing the province to an expected $12.3-billion surplus.

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Oil companies were producing a record 3.88 million barrels of oil a day in September. With the Trans Mountain Pipeline expansion expected to be completed in the third quarter of 2023, an additional 690,000 barrels of exporting capacity will be brought online.

Roach said he expects a 20 per cent jump in oil and gas extraction capital spending next year and another five per cent in 2024. But that will likely be the last major capital investment in Alberta’s sector for the foreseeable future.

“It hits that wall after next year,” he said. “Without more pipelines, you just can’t keep expanding production.”

He says there is cautious optimism for the city, bolstered by the current energy market along with diversification of the local economy, specifically with record growth in tech. Still, there is a long way to go for economic balance between energy and other sectors.

“It does take time to add up to something,” said Roach. “It won’t come up to the point where it can rival oil and gas, maybe never. That’s a big, big tall order. But in terms of economic growth, economic activity, it has been positive and there’s no reason why it won’t continue.”

Consumers facing higher costs for rent, groceries and utilities are still in for a tough year, said Roach.

Inflation has cooled since its highs of 8.1 per cent year-over-year this summer, down to 6.9 per cent nationally in October, but there are still a number of global factors that will continue to have an effect.

The war in Ukraine remains a wild card in how it affects global energy prices, supply chains and other commodities such as grain.

Supply chains are improving, but there are still challenges, particularly if COVID-related restrictions cause further interruptions. China has already seen disruptions in a number of sectors, especially those that rely on computer chips.

While gas prices have fallen off from their summer highs, they are still contributing to rising costs at grocery stores and other retail, especially as diesel remains about 60 cents per litre higher than gasoline.

Real estate is also expected to remain strong in Alberta in 2023, bolstered by the migration of 60,000 people to the province in 2022 from other countries.

A home for sale and sold sign are seen in this file photo.
A home for sale and sold sign are seen in this file photo. Gavin Young/Postmedia

The price of housing has come off its record-setting pace from 2021 and early 2022, but Re/Max is predicting a seven per cent increase in the price of single-family homes in Calgary in its 2023 Canadian Housing Market Outlook, released Tuesday. Only Muskoka, Ont., and Halifax are forecasted to have a higher increase in the price of a home at eight per cent, while Canada as a whole is looking at a 3.3 per cent decrease in home prices.

In Calgary, the average home sold for $658,277 between Jan. 1 and Oct. 31, up 13 per cent from $585,025 over the same period in 2021.

The Bank of Canada has been attempting to slow inflation, raising its benchmark interest rate from 0.25 per cent in March to 3.75 per cent in October. Roach said he expects rates to go up another 25 to 50 basis points next week. The strategy has had the desired effect of lowering prices in most other real estate markets, but Calgary remains an outlier.

He expects the bank to stop increasing rates next year, but it will be 2024 before a decrease is likely.

“It’s unlikely that they’ll stop at four,” said Roach.

“We think there’s still enough inflation that they’ll have to get into that 4.25 range. It’ll be all year those interest rates will be high, though, even if they stop raising them.”

jaldrich@postmedia.com

Twitter: @JoshAldrich03

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Russia is pushing its central bank to give 'upbeat' economic updates – Business Insider

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Russia is pushing its central bank to give ‘upbeat’ economic updates  Business Insider

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Biden highlights economy, spars with Republicans in State of the Union speech – Global News

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Given high inflation, slowdown in Canada’s economy is ‘a good thing,’ Tiff Macklem says

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Bank of Canada governor Tiff Macklem says that although a slowing economy may not seem like a good thing, it is when the economy is overheated.

Speaking in Quebec City on Tuesday, Macklem said that higher interest rates are working to cool the economy as elevated borrowing costs are constraining spending on big-ticket items such as vehicles, furniture and appliances.

As demand for goods and services falls, Macklem says the economy will continue to slow.

“That doesn’t sound like a good thing, but when the economy is overheated, it is,” he said.

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In addition to global events, the overheated domestic economy pushed up prices rapidly, he said.

To slow the economy domestically, the Bank of Canada has embarked on one of the fastest monetary policy tightening cycles in its history. It has hiked its key interest rate eight consecutive times since March, bringing it from near-zero to 4.5 per cent.

However, last month, the Bank of Canada said it will take a “conditional” pause to assess the effects of higher interest rates on the economy.

“Typically, we don’t see the full effects of changes in our overnight rate for 18 to 24 months,” Macklem said on Tuesday.

“In other words, we shouldn’t keep raising rates until inflation is back to two per cent.”

However, the governor said the Bank of Canada will be ready to raise rates further if inflation proves to be more stubborn than expected.

Bank of Canada hikes interest rates again to 4.5%

The Bank of Canada is raising interest rates again, bumping it to 4.5 per cent. This marks the eighth increase in less than a year, leaving some homeowners scrambling to keep their mortgages.

As gas prices have fallen and supply chains have improved, inflation in Canada has slowed since peaking at 8.1 per cent in the summer. Macklem called this a “welcome development,” but stressed inflation is still too high.

“If new data are broadly in line with our forecast and inflation comes down as predicted, then we won’t need to raise rates further,” Macklem said.

For inflation to get back to two per cent, Macklem said wage growth will have to slow, along with other prices.

Wage gains lagging inflation

Wages have been growing rapidly for months but continue to lag the rate of inflation. In December, wages were up 5.1 per cent.

Though annual inflation is still at decades-high levels, economists have been encouraged by a more noticeable slowdown in price growth over recent months.

The Bank of Canada forecasts the annual inflation rate will fall to three per cent by mid-year and to two per cent in 2024.

Royce Mendes, an economist with Desjardins, said that Macklem is crossing his fingers that the rate hikes he has implemented so far will be enough to get it done.

“The head of the Bank of Canada seems quite comfortable sitting on the sidelines even as his U.S. counterpart will be discussing the need for further monetary tightening south of the border,” Mendes said.

 

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