ALBERTA - Progressing towards full recovery

1 PROVINCIAL OUTLOOK | JUNE 2018. ALBERTA - Progressing towards full recovery The province has begun to attract net migrants from the rest of the country, oil production is growing, the manufacturing sector is bouncing back, and rms are hiring at a good clip again. However, a dearth in new oil sands investment and slack in the housing market shows the province's economy has ground to recov- er. We expect ALBERTA 's recovery from its 2015-2016 recession to continue, albeit at a slower pace, over the next two years. The province has begun to attract net migrants from the rest of the country, oil production is growing, the manufacturing sector is bouncing back, and firms are hiring at a good clip again. However, a dearth in new oil sands investment and slack in the housing market shows the province's economy has ground to recover. After growing at an estimated in 2017, we expect ALBERTA 's economy to expand by in both 2018 and 2019. Real GDP growth Annual ALBERTA endured a two-year long recession in 2015 and 2016 8.

2 Forecast caused by a dramatic pullback in oil and gas investment. Since that 6. time, eyes have been on oil prices and investment intentions as a 4. bellwether for ALBERTA 's full economic recovery and, so far, the news 2. has been mixed. While oil production has continued to grow, invest- ment spending in the oil and gas sector is expected to be broadly flat in 2018. There are tentative indications of a modest recovery -2. beginning in 2019, but to a level far below the highs of 2013 and -4. 2014. Future investment plans may be affected by concerns about -6. pipeline and other transportation constraints. A number of multi- -8. 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018. billion dollar projects are in the pipeline, including Keystone XL, Canada ALBERTA which will alleviate those supply constraints over time, and will add to GDP as they are built. However, according to RBC Equity Re- Source: Statistics Canada, RBC Economics Research search, it will be several years before new pipelines obviate the need for expensive rail transport to ship oil out of the province.

3 Al- Western Canada oil pipeline and rail capacity M illions of barrels per day berta's manufacturing sector hard hit during 2015-16 due to its 7. Forecast strong connection to oil and gas shows welcome signs of re- 6. bounding. Manufacturing shipments, when petroleum and coal prod- 5. ucts are excluded, is up more than 4% so far this year and manu- facturing employment is up 14% year to date. 4. The doldrums in oil and gas investment notwithstanding, ALBERTA 's 3. economy is on the upswing. We expect the province to lead the 2. country in job growth this year and remain on track for a substantial 1. decline in its unemployment rate over time. The ongoing recovery in the labour market will occur despite a rapidly growing labour force 2014 2015 2016 2017 2018 2019 2020 2021. as the province remains a top destination for immigrants and once Rail Capacity Export Pipeline Capacity Net Oil Exports again becomes a favored destination for Canadians moving from Source: RBC Global Energy Research other provinces.

4 Over time, a growing population and increasingly healthy labour market will help take up the slack in the housing mar- ALBERTA forecast at a glance ket. Housing inventories are high, giving buyers an advantage in the % change unless otherw ise specified 2015 2016 2017F 2018F 2019F. province's housing markets and keeping price growth and new con- Real GDP struction muted. Nominal GDP The provincial government is leaning into the province's economic Employment recovery through an expansive fiscal policy. While government capi- Unemployment Rate (%) tal spending has been scaled back, the province's most recent Retail Sales Housing Starts (thous of units) budget continues to project a large deficit of $ billion in 2018-19, Consumer Price Index little changed from $ billion in 2017-18. Gerard Walsh | Economist | 416-974-6525 | 3.