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