Safely Exiting the Economic Superhighway

    By Todd Hirsch
    Senior Economist
    ATB Financial

    CALGARY, Dec. 27 /CNW/ - Europe is famous for the autobahn, a series of
freeways stretching through many parts of Germany and surrounding countries.
Designed for high speeds, the autobahn has an official limit of 130 km/h, but
traffic tends to move considerably faster. I've not yet had the chance to
actually experience the autobahn, but I can imagine it's an exhilarating ride.
    But every trip - be it on the autobahn or a country lane - eventually
comes to an end. And there are only three ways to end a trip on the autobahn:
an exit ramp, an empty fuel tank, or a crash.
    For the better part of the past two years, Alberta has been riding high
on the economic equivalent to the autobahn. Job growth, housing starts, retail
sales, wage increases - name any economic barometer, Alberta was No.1 in the
country (and probably all of North America). In 2006, the overall economy grew
at 6.8% - and that is taking into account inflation.
    But now, things are slowing. Economic activity has been ebbing since
roughly the summer of 2007, and a more modest pace has been noticeable in all
of the indicators.
    ATB Financial's Business Sentiments Index(TM) is a gauge of overall
sentiment about the economy as expressed by over 400 businesses throughout the
province. The latest quarterly survey was conducted between November 19th and
December 5th, 2007.
    When asked about their general outlook for the first quarter of 2008,
businesses were decidedly less optimistic than they had been over the
preceding eight quarters. The index value fell to 124.7 - that's down from
140.2 in the first quarter of 2007, and 149.7 in the first quarter of 2006.
(An index value greater than 100 represents positive sentiment, and a value
below 100 represents negative sentiment; 100 is neutral.)
    In other words, Alberta's business community is feeling half as jolly
about economic conditions in the coming quarter as it was at this point two
years ago.
    But perspective is always needed. Consider the driver on the autobahn.
Once that driver becomes accustomed to moving at 130 km/h, a deceleration to
80 km/h is very noticeable. It feels like coming to a complete stop.
    So it is with Alberta's economy. With 2006 smashing all kinds of records
and posting growth approaching those in the Chinese economy, there is only one
way sentiment could turn in 2007 and 2008, and that is softer. And it feels
softer, too.
    Of course, the question looms large in the minds of everyone: is this the
bust? How do we know that Alberta is only on the exit ramp leaving the
autobahn, rather than running out of gas... or worse, crashing?
    There's still lots of fuel left in Alberta's gas tank. Sure, that other
kind of gas - natural gas - is low in price and a depleting resource in the
province. Drilling activity is off sharply and that has been a major factor in
the slowdown we are experiencing. The strong Canadian dollar is also curbing
growth among exporters and the tourism sector. But other sectors of the
economy - construction, oilsands, business and personal services, retail, and
transportation - all remain on fairly strong footing.
    And it's clear the economy is not crashing. A crash - just like one on
the highway - can't be mistaken for anything else. You know when you've
crashed the car. Albertans knew the economy had crashed in the early 1980s.
Housing prices did not gradually ease, they plummeted. Unemployment didn't
creep up half a percentage point over a few months, it spiked. None of those
dire signals are weighing on the provincial economy at the moment.
    But the most important evidence that rules out an empty gas tank or a
crash is that sentiment in the province remains positive. The index value of
124.7 is certainly down from previous first quarter readings, but it is still
well above the neutral 100 mark. The US and Central Canada would be very happy
at this point if business sentiment were anywhere near Alberta's.
    So the exhilaration of a trip on the economic autobahn may be drawing to
a close for Alberta, at least for now. We are on the exit ramp, safely
reducing our speed and looking forward to a more sustainable trip in 2008.
    And in all likelihood, the side roads exiting the autobahn will offer
better scenery.

For further information:

For further information: Todd Hirsch, Senior Economist, ATB Financial,
(403) 974-5023,

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