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Alberta's economy faring better than most - economist

Alberta’s economy may have taken a hit through the recession, but looking at current conditions and into the future, it is far better off than many others.

Alberta’s economy may have taken a hit through the recession, but looking at current conditions and into the future, it is far better off than many others.

ATB senior economist Todd Hirsch said there are many danger signs in the world economy, including from the situation with the European Union and Greece to the flat results coming out of the United States during 2011.

While Canada’s economy was predicted at the beginning of 2011 to do quite well with the IMF and OEC projecting good growth, Hirsch said contraction in the second quarter due to exports falling meant it did not outpace the G8 as expected.

Speaking at the recent Bow Valley Builders and Developers Association (BOWDA) luncheon, Hirsch said Canada will avoid recession in 2011 and the Bank of Canada will not raise interest rates either – both good signs.

But with Alberta being in better shape, despite those warning signs from Europe and the U.S., he expects the province to continue to do well through 2012 and be one of the top performing economies in the country.

“We are in a bit of an insulated bubble in Alberta and our economy appears to be growing nicely,” he said. “Businesses in Alberta remain very optimistic about the current conditions and what to expect in the future.”

The main reason is the price of crude oil, which Hirsch said continues to hover in the mid $90s per barrel.

A second point of optimism for the province is the fact the Alberta labour market has created 90,000 full-time private sector jobs over the last 12 months.

Finally, Hirsch said, things are looking good for the provincial agriculture sector and while it represents only three per cent of GDP, has an affect on 10 to 15 per cent of the economy.

He said favourable prices and a good harvest this fall means that sector can expect to have a strong year.

Hirsch said Alberta’s good news story also needs to take into account the context of the world economy, including financial crisis in Europe.

Greece’s problem with insolvency represents only three per cent of the EU, so why is it important? asked Hirsch.

“Greece is a bit of a canary in a coal mine,” he said “It is not just Greece – it is Ireland, Italy, Portugal and Spain, because it is looking increasingly like they also will be having problems.

“The other reason it is important is the contagion effect.”

Hirsch said investors become frustrated when governments are slow to deal with these issues and when governments are in trouble the banks are in trouble too and uncertainty has an effect of the markets.

American markets are not doing as well as was hoped, Hirsch said, given that between 2009 and 2010 the indicators were fairly optimistic.

“In 2011 the wheels fell off the bus,” he said, adding there is less danger of another recession, but there is flat or sluggish growth.

Part of the issue is the labour market, with nine per cent unemployment.

“It is hard for the economy to gain traction with that,” he said, in addition to the average term of unemployment being 40 weeks compared to 14 in Alberta. “The other economic problem in the U.S. is the housing problem, as prices after the 2007 collapse have not come back at all.

“Overall, in the U.S. the housing prices have flat lined and could be flat lined for several years if their economy does not start to strengthen.”

Making matters worse down south is the political turmoil, said Hirsch, as the two sides “are not playing nice”.

He said this summer’s political crisis over the debt ceiling was manufactured and Washington, while saddled with significant debt, is quite solvent and a long way from being bankrupt.

“Washington in 2011 has a lot of options to deal with the deficit and debt,” Hirsch said. “Really, it is a political problem and their leaders seem incapable of finding a solution to the problem.”

One fallout of that manufactured crisis is that consumer confidence is down through May, June and July.

“All of this does pose a danger, not just to the American economy, but the global economy,” he said, adding the stock and commodity markets as a result are volatile. “We focus on the negative and miss the positive and as consumers we feel less secure.”

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