July 23 (Bloomberg) -- In Canada’s economy there’s Alberta, and there’s everywhere else.
The oil- and gas-rich western province was responsible for all of the country’s net employment growth over the past 12 months, adding 81,800 jobs while the rest of Canada lost 9,500. Alberta’s trade surplus, C$7.4 billion ($6.9 billion) in May, almost matched the deficit rung up everywhere else.
If growth trends over the past decade continue, Alberta would pass Quebec to become the country’s second-largest provincial economy in three years, according to data compiled by Bloomberg.
“Alberta is already by far the strongest province economically, and higher oil prices will only exacerbate the regional split,” Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto, said in a telephone interview.
Alberta’s growing power is doing more than putting energy ahead of manufacturing exports such as Ontario’s cars and Quebec’s aircraft. It’s drawing tens of thousands of young people to the province, seeking energy jobs with some of the country’s highest salaries.
It’s also posing a challenge to policy makers: Oil wealth has led to a stronger Canadian dollar, squeezing Ontario and Quebec manufacturers. Canada’s central bank is keeping interest rates near historic lows, looking for a weaker currency to boost exports.
“We see a two-track economy,” Bank of Canada Governor Stephen Poloz said at a July 16 press conference after his decision to extend the longest interest-rate pause since the 1950s. Canada’s non-energy exports have disappointed, he said, holding back growth. At the same time, “energy exports have indeed been quite strong and we expect that to be a continuing trend.”
Manufacturing has been at the heart of Canada’s economy and government policy for decades, marked by a 1965 pact to establish a single market for autos between the U.S. and Canada, and a 1988 free trade agreement to wipe out tariffs on goods traded by the two nations, later expanded to include Mexico.
Today Prime Minister Stephen Harper, who represents a Calgary district in Parliament, says the world’s 11th-largest economy may see C$650 billion of resource projects over the next decade, such as Enbridge Inc.’s C$6.5 billion Northern Gateway pipeline, which won conditional approval last month. The project would take Alberta bitumen to the Pacific Coast, opening access to Asian markets and reducing Canada’s reliance on the U.S. for its crude exports. Producers are also waiting for President Barack Obama’s delayed review of TransCanada Corp.’s Keystone XL pipeline, which would bring Alberta oil to U.S. Gulf Coast refineries.
Even without those conduits, Alberta’s oil is powering growth. Calgary-based Canadian Pacific Railway Ltd. shares have returned 61 percent in the past year, compared with 24 percent for the benchmark Standard & Poor’s/TSX Composite Index, as the company benefits from increasing shipments of oil by rail.
“Continued expansion of oil and gas production has resulted in increased revenues,” Chief Operating Officer Keith Creel said on a July 17 earnings call. “Looking at the balance of 2014, we see strong fundamentals on the demand side.”
The unbalanced nature of the economy is reflected in the construction of Calgary skyscrapers, like Encana Corp.’s headquarters. It can also be seen in economic statistics. Alberta has been “effectively the lone driver” of recent housing starts, spurred by population growth that’s the highest in more than three decades, Bank of Montreal estimates. The province’s per capita gross domestic product will reach C$88,000 next year, C$35,000 more than the rest of Canada, Toronto-Dominion Bank economists predict.
“Alberta will lead all other provinces as many sectors of the economy are performing well,” Arlene Kish, senior economist at Lexington, Massachusetts-based consulting firm IHS Global Insight, wrote in a July 16 report. Economic growth rates of 3.4 percent this year and 3.0 percent next year will be the strongest in Canada, she forecasts.
Alberta’s jobless rate was 4.9 percent in June and has averaged 5.4 percent over the last five years. That compares with Canada’s 7.1 percent rate in June, and five-year average of 7.5 percent.
“When you live in Alberta you have a sense of job security and of choice,” said Byrne Luft, vice president of operations for Manpower Canada in Toronto, who was raised in Edmonton and Calgary. Manpowergroup Inc. is a Milwaukee-based employment-services firm.
Alberta’s labor market has gone “from a very tight unemployment rate to an extremely acute, critical point,” Luft said by telephone. “They are really sitting at zero unemployment.”
More people moved to Alberta from other provinces than to any other area -- about 27,700 in 2011-12, the latest year available -- according to federal statistics agency. Since records began in 1976-77, Alberta has brought in a net 483,600 people from the rest of the country, while Quebec saw an outflow of 465,400 people over that period. Ontario saw a net inflow of 63,200 people, about 13 percent of Alberta’s total.
Alberta’s coffers are being filled by oil royalties, with output from the province’s oil sands set to more than double to 4.1 million barrels a day by 2025 from 2013, according to the Canadian Association of Petroleum Producers. The value of exports of crude oil derived from bitumen has almost doubled to C$81.7 billion in 2013 from C$42.8 billion in 2009, according to Statistics Canada data. That’s helped the province turn a deficit, forecast at C$2 billion for the year ended March 31, into a C$755 million surplus.
In Ontario, Finance Minister Charles Sousa’s plan to take until the 2017-18 fiscal year to eliminate its C$12.5 billion deficit led Moody’s Investors Service to cut the outlook on the province’s Aa2-rated debt to negative on July 2.
Alberta’s bonds due in seven to 10 years yielded 2.63 percent on July 21, compared with 2.79 percent for similar-maturity Ontario debt, according to Bank of America Corp. data. Alberta pays 60 basis points above comparable federal debt to borrow money for seven to 10 years, the lowest spread among Canada’s 10 provinces, the data show. Investors demand 80 basis points from Ontario and 81 basis points from Quebec to hold debt of that maturity.
Ontario has been hurt by cutbacks at automakers such General Motors Co. and weakness at smartphone maker BlackBerry Ltd. Quebec has struggled with with Montreal-based Bombardier Inc. seeing delays with its new CSeries jet and lumber and paper mills closing.
To be sure, Canada’s economy still benefits from a broad array of commodity exports and is underpinned by the world’s safest banks headquartered in Toronto.
“Canada is becoming a tale of two cities, Toronto and Calgary,” said Jack Mintz of the University of Calgary’s School of Public Policy, who used to teach at University of Toronto. “I don’t think growth in Alberta means other places are worse off,” he said. Ontario has lost manufacturing competitiveness to China, the U.S. and Mexico, he said.
Calgary rated higher than Toronto in a review of prosperity across 24 global cities conducted by the Toronto Region Board of Trade. Calgary was second on superior growth for income and jobs, along with lower taxes, and Toronto was in third place. Paris topped the list.
Alberta’s rise both marks a revolution for Canada’s economy as well as a throwback to the days when the country, then a collection of colonies, relied on the fur trade. Canada remains dependent on exports of such staple goods.
While such reliance brings economic risks, oil as a staple export has more staying power than the beaver pelts that once fed Europe’s fashion industry, said CIBC World Markets economist Peter Buchanan by telephone from Toronto. “Fur hats come and go in fashion, but it’s harder to do without oil.”
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