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Alberta, Saskatchewan to see improved economies in 2017: Conference Board

Canada's oil industry heartland is expected to see a steady recovery in 2017, according to the newest outlook from the Conference Board of Canada. Both Alberta and Saskatchewan will see improved economic performance in the coming year, though it will be slow and steady in both cases.

Alberta is forecast to emerge from one of the worst recessions to hit the province in decades next year, albeit economic recovery is likely to be modest, according to The Conference Board of Canada's Provincial Outlook: Autumn 2016.

"It appears that the worst may be over for Alberta, but the road to recovery won't be easy. Given the lower oil price environment, energy sector budgets are not expected to increase substantially over the next few years, capping the province's economic growth prospects at around 2 percent at best," said Marie-Christine Bernard, Associate Director, Provincial Forecast, The Conference Board of Canada.

Meanwhile, Saskatchewan's economy contracted again this year, but conditions are forecast to improve gradually going forward. After declining by 1.5 per cent this year, overall economic growth is expected to resume in 2017, with GDP rising by 1.2 percent.

"The downturn in commodity markets appears to have reached bottom but no swift pick-up in prices or development of new major projects is expected over the near term," said Bernard.

The landscape in Alberta has changed with massive cutbacks in capital budgets in the oil industry. The recent stability in oil prices is forecast to help stem the decline in capital expenditures and set the pace for a recovery that will span over a few years. Nevertheless, and despite the recent OPEC supply cut announcement, there remains a lot of oil in storage around the world that will keep the West Texas Intermediate oil price from going much above US $55 per barrel over the next year.

The recent election in the United States also offers fresh hope for getting more Canadian crude oil to markets. The Keystone XL pipeline that was rejected by the Obama administration will likely be more favoured by the incoming Trump administration, as it was one of the President-elect's campaign promises. As well, the federal government approval of the expansion of Trans Mountain pipeline is welcomed news for Alberta's energy sector, but the project still has to overcome hurdles and legal challenges before investment takes place.

Alberta weathered some tough economic times over the last two years and their misfortune deepened as wildfires tore through communities and resulted in temporary shutdowns in the oil patch. The wildfires hindered oil production and exports and also hurt employment throughout the spring and summer. The rebuilding efforts in Fort McMurray should kick into high gear early next year and this will have a positive impact on economic growth in 2017.

Overall, real GDP growth is expected to reach 2.2 per cent in 2017. Rebuilding fire-ravaged Fort McMurray will contribute 0.4 percentage points to real GDP growth in 2017.

The completion of a number of large-scale mining projects will create a gap in mining investment in Saskatchewan. Investment spending as a whole dried up with the fall in oil prices and capital outlays are expected to remain sluggish until the end of the decade. In addition, total mining production in Saskatchewan will remain depressed this year and next. On the bright side, potash production is expected to be a contributor to the economy over the near term as new production at K+S Legacy mine comes online and activities at the idled Mosaic Colonsay mine may come back. There is, however, uncertainty in the potash industry as global inventories remain elevated and new potash mining investment will likely remain weak.

Another bright spot for the province is a recovery in the agriculture sector. After weather hampered this year's harvest, Saskatchewan's agriculture sector is expected to post a positive performance over the near term. Risks loom as well in the agriculture with the possible renewed trade restrictions from country-of-origin labeling (COOL).

As the economy begins to stabilize, a pick-up in the service sector should spur modest job creation and improve domestic demand conditions over the next few years. Saskatchewan workers can expect gains in employment in 2017, but wage gains will be marginal, reflecting the considerable slack in labour markets. Household consumption is expected to increase modestly over the forecast period and consumer spending on services will reap most of the benefits from the small gains that do occur. Financial and commercial services are forecast to begin to rebound in 2017.

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