Alberta economy dragged down by declines in capital spending, says RBC report



    TORONTO, June 15 /CNW/ - Sharply scaled-back spending on construction
projects is contributing to Alberta's steepest economic decline in 17 years,
with the province's real GDP forecast to contract by 2.5 per cent in 2009,
according to the latest report from RBC Economics.
    "The plunge in energy prices from peak levels last year and elevated
construction costs have thrown several capital projects off course in Alberta
since last summer," said Craig Wright, senior vice-president and chief
economist, RBC. "Business capital investment has slowed considerably and
weaker investment will weigh heavily on Alberta's economic performance this
year."
    In the all-important oil sands sector, more than half of the $130 billion
in proposed projects was on hold as of the end of April. The most recent
provincial budget calls for capital expenditures in that sector this year to
be cut by half, compared to 2008. As well, the government has opted to hold
the line on stimulus spending.
    The RBC report notes that the province's severe slump is taking its toll
on jobs as well. The unemployment rate in Alberta - which for five years had
been the lowest in the country - spiked upward to a 12-year high of 6.6 per
cent. New Employment Insurance claims experienced the steepest increase in the
country, surging 145 per cent above last year's levels.
    The economic downturn also has hit the housing sector hard, with housing
starts down 65 per cent year-over-year, in the first five months of the year.
RBC forecasts that, for 2009, housing starts will fall to 16,700 units, the
lowest level in eight years.
    In the first quarter, retail sales plummeted by more than 10 per cent
year-over-year, reflecting the soured mood of Alberta consumers in the face of
the economic downturn and deteriorating job market. The RBC report anticipates
that, while consumer spending will start to improve gradually through the
latter part of 2009, it will have a dampening effect for the year overall.
    RBC foresees a turnaround in Alberta's economy in 2010, with real GDP
bouncing back to a 2.9 per cent growth rate, bolstered by increased
construction activity expected to arise from new megaprojects moving ahead and
the resumption of work on currently idled projects. Oil prices are projected
to be maintained at $65 (US) per barrel.
    The main theme of the RBC Provincial Outlook is that tremendous weakness,
late last year and early this year, has prompted a downward revision to real
GDP growth forecasts across the board for 2009. Recent developments lend
support to RBC's view that a general recovery will be established by the
second half of 2009 and sustained in 2010. In 2009, expectations are that the
economies of only three provinces - Saskatchewan, Manitoba and Nova Scotia -
will grow, while all other provincial economies will contract. Ontario (deep
troubles in the auto sector) and Newfoundland and Labrador (sharp drop in
mineral and oil production) are taking the biggest hits, with Alberta
(cutbacks in business and residential investment) being the other province
showing above-average decline in activity. However, RBC continues to project
that growth will return to all provinces next year.
    The RBC Economics Provincial Outlook assesses the provinces according to
economic growth, employment growth, unemployment rates, retail sales and
housing starts.
    According to the report (available online as of 8 a.m. EDT today, at
www.rbc.com/economics/market/pdf/provfcst.pdf), provincial forecast details
are as follows:

    
                      Real GDP         Housing starts         Retail sales

                   Y/Y % Change          Thousands            Y/Y % Change
                08     09     10      08     09     10      08     09     10
                --     --     --      --     --     --      --     --     --

    N.& L.    -0.1   -3.5    3.0     3.2    3.2    3.0     7.6    0.1    4.8

    P.E.I      0.9   -1.8    2.0     0.7    0.5    0.7     5.6   -1.3    4.1

    N.S.       2.0    0.2    2.5     4.3    3.2    3.5     4.2   -2.8    4.5

    N.B.       0.0   -0.5    2.7     4.2    3.5    3.5     5.9   -2.2    4.1

    QUE.       1.0   -1.6    2.3    47.9   38.9   37.0     5.1   -1.5    4.5

    ONT.      -0.4   -3.4    2.2    75.6   52.7   65.0     3.5   -3.0    4.2

    MAN.       2.4    0.5    2.8     5.6    3.9    5.3     7.2   -2.6    5.4

    SASK.      4.4    0.7    2.8     6.8    3.3    3.7    10.6   -1.9    5.8

    ALTA.     -0.2   -2.5    2.9    29.0   16.7   28.0    -0.1   -7.8    5.7

    B.C.      -0.3   -1.9    2.9    34.3   14.7   23.0     0.3   -6.5    5.9

    CANADA     0.4   -2.4    2.5     211    141    173     3.4   -3.7    4.8


                    Employment        Unemployment rate

                   Y/Y % Change               %
                08     09     10      08     09     10
                --     --     --      --     --     --

    N.& L.     1.5   -2.6    1.1    13.2   14.7   14.8

    P.E.I      1.3   -2.3    1.0    10.7   12.5   12.6

    N.S.       1.2   -0.4    1.0     7.7    9.3    9.6

    N.B.       0.9   -0.5    0.6     8.6    9.5   10.3

    QUE.       0.8   -1.0    1.1     7.2    8.8    9.4

    ONT.       1.4   -2.6    1.0     6.5    9.3    9.9

    MAN.       1.7   -0.1    1.3     4.1    5.1    5.6

    SASK.      2.2    1.5    1.2     4.1    5.2    5.7

    ALTA.      2.7   -1.0    1.4     3.6    6.4    6.7

    B.C.       2.1   -2.5    2.1     4.6    7.8    7.8

    CANADA     1.5   -1.7    1.3     6.1    8.5    9.0
    





For further information:

For further information: Craig Wright, RBC Economics Research, (416)
974-7457; Robert Hogue, RBC Economics Research, (416) 974-6192; Stephanie Lu,
RBC Media Relations, (416) 974-5506


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