ROAD TO RECOVERY



Recovery in city to hit a few bumps, economist says
By Mario Toneguzzi
Calgary Herald
October 6, 2009

Calgary is likely to feel many peaks and troughs on the road to economic recovery, according to Calgary Economic Development.

In its 2010 Economic Outlook delivered Tuesday at a downtown luncheon, the organization said two issues will impact the local economy --its heavy trading ties to the U. S. and its close links to the energy markets.

"Before we get to sustained recovery, we will likely experience more volatility along the way," said Adam Legge, the group's vice-president and chief economist, who authored the report.

The outlook estimates that real GDP will contract this year by 2.5 per cent, reflecting local and global recessionary conditions, and Calgary will continue to face economic challenges in 2010.The group predicts real GDP growth in 2010 of 0.8 to 1.2 per cent.

"The recession provides ample evidence of one fact -- Calgary and Alberta are still heavily dependent upon the price of oil and gas," said Legge. "There are lots of other factors at play, but boiled down to its essence, our prosperity depends on the state of two prices. That's it. Two prices."

"This may be simplistic, but it il-lustrates an important fact. We aren't there yet in terms of a more diversified economy," said Legge.

The Calgary Economic Development report said oil prices should remain in a range sufficient to enable Calgary-based producers to earn returns and maintain moderate levels of investment. Next year will not likely represent any return to surging oil demand growth or oilsands investment.

Legge said most analysts expect oil to be in the $60 to $90 range throughout 2010.

But he said Alberta faces "serious" short-and long-term challenges to its natural gas industry which are likely to result in further business fallout in the city in 2010.

"The former engine of Canada's economic growth, Alberta is now performing as the brake on recovery," said Legge.

He said Calgary's economy was the strongest performing urban economy in the country for about a decade, but the global recession and a reliance on energy markets and one trading partner has brought the city's economic performance down significantly.

"For 2010, economic activity is not expected to charge ahead like a bull . . . It is going to experience much volatility and variability reflecting fluctuations in the U. S. economy and oil and gas activity," said Legge.

"Recovery is going to happen. When exactly, no one knows. Balance sheet recessions, like the one we are in, have proven historically to be longer and slower to recover. It might take another six, 12 or 18 months before we can truly say that the worst might be behind us. And when it does, it likely will be a slow, steady recovery . . . In the long-term, however, more modest growth rates might become the new norm, and ultimately be what we need to keep us honest."

Don Drummond, chief economist with TD Bank Financial Group, said Alberta's GDP will decline by an estimated 2.3 per cent this year, but grow by 1.9 per cent in 2010.At the national level, GDP will fall by 2.5 per cent in 2009 and is expected to grow by 2.4 per cent the following year.

He predicted Calgary's GDP will rise by 1.4 per cent in 2010.

"The world economy is recovering from the great recession," said Drummond, who also spoke at the luncheon.

"For Alberta, oil prices will remain far from the previous peak and the natural gas industry will be challenged by low prices and new competition. The federal and provincial governments will have to turn to restoring budget balances.

"Economic diversity will have to accelerate. In brief, the economic climate will improve, but the dark clouds from the great recession will linger."

Douglas Porter, deputy chief economist with BMO Capital Markets, who was in Calgary for a panel discussion on the local real estate market, said the Alberta economy will contract by 2.5 per cent in 2009, but grow by 2.5 per cent in 2010, which he described as a "halting recovery."