The Capital Region’s Economic Outlook October 15, 2012Alberta continues to outperform national...

John RoseChief Economist

Financial Services and Utilities

The Capital Region’s Economic Outlook

October 15, 2012

The Capital Region’s Economic Outlook

October 15, 2012

AgendaRecent Developments

• The Global Context• Canada , Alberta, Edmonton• Energy prices• Alberta and the Capital Region, job growth,

inflation, building permits and housing starts

The Outlook• The Region, Edmonton and Strathcona• High growth sectors• Risks and opportunities

Global Environment

• An uneven and anaemic recovery is underway

• Euro zone to experience a ‘double dip’

• Global financial markets remain fragile

% Real Growth

-1 2 5 8

China

Emerging

World

Canada

US

Euro Area

2012 2013

Source: International Monetary Fund

Canada, Alberta & the Capital Region

• Canadian domestic conditions remain good - western provinces out perform

• Sluggish US expansion will moderate growth

• Alberta continues to outperform national average

• 2012 bright for GDP & employment growth in Region

• Edmonton’s growth will slow to more sustainable levels in 2013

% Real Growth

0 1 2 3 4 5

City of Edmonton

The Region

Strathcona County

Alberta

Canada

2012 2013

Source: IMF, Conference Board, City of Edmonton

Oil Prices West Texas Intermediate

Source: US Energy Information Administration

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec

$US

Bbl

5 Year Max5 Year Min20112012

Oil Price Gaps Grow

Source: Bloomberg

Natural Gas Prices Henry Hub

Source: US Energy Information Administration

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec

$US/

mm

Btu

5 Year Max

5 Year Min

20112012

Alberta’s Unemployment Down• Alberta’s labour

market is paused in first quarter.

• Unemployment should fall to an annual average of just below 4.4% in 2012.

• Unemployment rates significantly below 5% can trigger wage increases and higher inflation.

Alberta's Unemployment Rate

0

1

2

3

4

5

6

7

2006

2008

2010 Feb Apr

June Aug OctDec Feb AprJu

ne Aug

%

Source: Statistics Canada

Annual Monthly

Alberta’s Inflation Moderates• Inflation is now running

at 0.9%, well below 2011.

• Key drivers of lower inflation have been electricity and gasoline prices.

• Inflation should accelerate over 2012. The current forecast is 2.5% for 2012.

Alberta Consumer Price Index

(Annual Rate of Change)

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2006

2007

2008

2009

2010

2011 July

Source: Statistics Canada

Job Growth Returns• The Region’s rate of

job growth in 2011 among the fastest of any large municipality.

• Growth stalled in late 2011 and early 2012.

• Growing labour force has moderated wage pressures.

• Recent strong job gains point to labour shortages and wage pressures.

Source: Statistics Canada

Region’s Unemployment Rate

0

1

2

3

4

5

6

7

8

AugNovFebMayAugNovFebMayAug

%

The Capital Region Labour Market• Outstanding growth in

employment and population.

• High incomes and low inflation.

• Very strong migration into the region.

• Implications – Strong momentum in the local economy will sustain growth into 2013. Expect growth to cycle toward the consumer side.

% Annual Growth to August

0 1 2 3 4

Canada

Alberta

CapitalRegion

Work Age Pop Labour Force Employment

Source: Statistics Canada

Consumer Inflation Stabilizes• The region’s year-over-

year inflation rate is down to 1.0% from relatively high levels in 2011.

• As with Alberta, inflation will pick up somewhat from current levels. Forecast is for 2.5% by the end of 2012.

Source: Statistics Canada

Capital Region CPIAnnual Rate of Change

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2006 2007 2008 2009 2010 2011 July

Non Residential Construction Price Index

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Q12002

Q12003

Q12004

Q12005

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

Q12012

Source: Statistics Canada

Real Growth in GDP• The Region has enjoyed a quicker recovery as manufacturing and non-residential construction activity picks up.

• Over the medium term the city growth rate converges with that of the region.

• Younger demographic profile allows the region to grow more rapidly than Canada in the final years of the outlook.

0

1

2

3

4

5

6

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

% R

eal G

row

th

Edmonton CMA City of Edmonton Strathcona County

Source: City of Edmonton

Estimated Real GDP for 2012 Millions of $2002

City of Edmonton

68%

Strathcona County

9%

Rest of CMA23%

Total Real GDP for the Edmonton CMA $56,719 million

High Growth Sectors for Small Business

• Manufacturing – Metal Fabrication, Machinery, Food Products

• Transportation and Logistics• Construction – Residential,

Renovation and Maintenance• Retail• Personal Services• Entertainment, Hospitality, Culture

Downside and Upside RisksDownside

• Growing discount for Cdn oil

• European financial crisis worsens

• Cdn housing market stumbles

• Sudden slowdown in emerging markets

Upside• U.S. recovery gains

momentum • Europe patches over

financial issues and returns to faster growth profile

• China and other emerging countries succeed in stimulating more rapid growth

Q & AJohn RoseChief EconomistFinancial Services and Utilities5th Floor, Chancery HallEdmonton, Alberta, T5J 2C3(780) 496-6070john.rose@edmonton.ca