Alberta economy will grow modestly in 2017 and energy sector won't fuel it, analysts say

Alberta's economy will return to modest growth in 2017, but it won't be fuelled by the energy sector, according to ATB Financial's latest outlook.

The report forecasts GDP growth of 2.2 per cent this year led by agriculture, agri-food and tourism after a 2.7-per cent contraction in 2016.

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"Tourism could experience another record-setting year thanks to a relatively weak dollar, greater tourism from Asia and Canada's 150thcelebrations," ATB Financial said in a release Wednesday.

The report says hog prices have improved slightly, and wheat and canola prices have perked up recently. Farmers can expect a decent year for profits if the weather cooperates.

"Even greater optimism and potential exists in agri-food and food processing," the report said.

Earlier this month, the Conference Board of Canada predicted Alberta would lead the country with real GDP growth of2.8 per cent in 2017.

Major investment in Lethbridge

A plan by Cavendish Farms to build a $350-million frozen potato processing plant in Lethbridge the largest private investment in that city's history is a big part of that optimism, the report says.

Other small food processing businesses, micro-breweries and distilleries are also fuelling growth.

"This remains a bright spot for economic diversity and job creation," the reports said.

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The outlook is less certain for Alberta cattle ranchers. Forced culls and quarantines due to an outbreak of bovine tuberculosis have hit cattle ranchers hard, and future contracts for live cattle are 15 per cent less than 2016 and well below record highs reached in 2015, the report says.

Higher oil prices, Ottawa's approval of two pipeline projects and the resuscitation of Keystone XL have revived some optimism in the petroleum sector, the report says.

'Era of modest growth'

And while the petroleum industry is starting 2017 in better shape relative to the past few years, unemployment could remain close to eight or nine per cent until the second half of 2017.

The price of WTI benchmark oil is expected to remain in the $50 US to $60 US range, but growth in energy sector investment is still expected to be soft, said ATB Financial chief economist Todd Hirsch.

"The projected growth in our GDP represents an end to the 2015-16 recession but it ushers in an era of modest growth," he said.

"It will stand in contrast to the high-growth period of 2010-14 when the economy expanded by four to five per cent annually."

Strong house prices

Construction spending is expected to be sluggish in 2017, especially in the commercial sector, partly due to the surplus of office real estate coming on to the market in Calgary.

This could be offset by increases in government building projects as promised federal and provincial infrastructure capital spending plans come online, the report says.

With a glut of unabsorbed housing on the market and at least another six months of inter-provincial out-migration expected, new home construction will likely fall slightly in 2017.

However, housing prices in Calgary and Edmonton should remain steady as confidence grows, the report said.

And despite the economic downturn, house prices in Calgary have even edged up, the report said. In January, the average price of a detached house in Calgary was $544,230 3.4 per cent higher than January 2015.

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