It turns out that it didn’t go very much to script! Debt ceiling crisis in the United States, financial turmoil in Europe, and even worries in Asia’s emerging economies punctuated the economic headlines around the world in 2011. Hardly a year of relative calm.
The primary factor driving the recovery was without question crude oil. With prices ending the year near $US 100 per barrel, the province’s energy sector is in very good shape. Activity in conventional drilling and the oilsands led the charge (while natural gas prices remained weak). A very strong year for agriculture added to the overall optimism in 2011.
Of course, a big economic news maker in 2011 was the delay of the Keystone XL pipeline. Sidelined in the US for political reasons, the delay does put Alberta in a new and interesting situation. What is significant about this event is that it heralds the beginning of a new era in which building pipelines is now much more difficult. This poses a new level of risk.
What lies in store for Alberta in 2012? Although the province did seem somewhat immune from the global softness in 2011, the fate of the province’s economy in the coming year still depends on what happens elsewhere.
The US economy could be hobbled in 2012 by its ongoing problems in the labour and housing markets. Sure, the unemployment rate did fall encouragingly below 9%, but that was driven more by discouraged workers dropping out of the job hunt, rather than new jobs being created. Not much of a ringing endorsement of labour market strength.
The housing market remains mired in the mud with prices, starts, and sales all flat. Political rhetoric was bad enough in 2011 with the debt ceiling talks, but it could intensify in 2012 leading up to November’s presidential election. All of these factors combined point to slow economic growth at best for America.
Europe will continue to dominate global headlines as any resolution to government debt problems—perhaps with a tighter fiscal union across the continent—will take time to implement. The emerging economies of China and India will remain at the top of the global growth totem pole, albeit at a slower pace.
All of this puts the Canadian economy (and to a certain extent, Alberta’s economy) at risk. As a very trade-dependant nation, we remain captive to the economic state of our global trade partners—particularly the United States. With their economy stuck in neutral, it may be a tough slog for Canadian exporters.
So what is the economic script for Alberta in 2012?
The situation in this province will remain highly unique. With relatively less exposure to consumer-oriented manufacturing than central Canada, and with oil and agricultural composing the vast majority of our exports, Alberta’s economic vulnerability is on the commodity side. And while we export very little oil or grain to China, that country’s fortunes in 2012 could be the make-or-break for Alberta. If China’s economy starts to show serious signs of slowdown (or worse, recession), oil and other commodity prices are likely to plunge, leaving Alberta in trouble.
The most plausible scenario in 2012 looks like this: the American economy will be soft, but not in recession; Europe will enter a credit-crunch led recession, but the fallout will be felt less severely on this side of the Atlantic; China and India will see some moderation in growth, but won’t touch recession. Commodity prices—particularly crude oil—should remain solid. Oil will continue to trade in the range of $US 80-100 per barrel, which will leave Alberta’s economy in very good shape.
A less plausible (but not impossible) scenario sees extreme financial turmoil in Europe, leading to the collapse of its currency and banking system. This would be enough to drag the US into a credit-crunch recession. And if Europe and the US are both in deep contraction, China will get dragged down too. Crude oil would get pushed to $US 60 or lower.
And what THAT scenario would do to Alberta is too unpleasant to ponder this close to Christmas!