We recently hosted a live question and answer session with Charles St-Arnaud who is the chief economist at Alberta Central, the central banking facility and trade association for Alberta’s credit unions. There is a lot going on in the economy right now and we know you might not have time to keep track of it all, so here is a recap of what we talked about. Thank you to everyone who tuned in and asked questions!
There is finally some light at the end of the pandemic tunnel, says Charles. By September, the vast majority of adults who want to be vaccinated will be and that should mean no more business restrictions. Although Alberta’s economy had a double shock in 2020 – business closures and job losses related to the pandemic as well as drastic decreases in oil production and prices – we are not faring much worse compared to the rest of the country, says Charles. In fact, the value of oil production is now above its pre-pandemic level. So while 2020 was an incredibly hard year, we’re expecting relatively strong growth in the province moving forward.
The hot housing market is being driven by a number of factors. Mortgage rates are nearly the lowest they’ve ever been, so many homebuyers want to take advantage of that. Pandemic life has also made many people re-evaluate their living situation and look for larger houses with outdoor space or room for a home office or two. This increased demand is creating a shortage of houses on the market and therefore increasing prices. And because the pandemic hasn’t affected everyone equally, there are still many potential homebuyers despite a relatively high unemployment rate across the province. We can expect more houses to go up for sale as prospective sellers decide to take advantage of high prices and that will help moderate the market, but housing will continue to be a strong market throughout the year, says Charles.
Debt and insolvency
Insolvency, or the state of not being able to repay your bills, would generally increase when unemployment increases. However, the insolvency rate fell to its lowest level in years in 2020, despite a rise in indebtedness. This is due in part to the number of government supports that have been implemented during the pandemic. (Click here for a list of federal and provincial COVID-19 financial relief programs.) It is also due to the deferrals of mortgage payments and other consumer credit payments by financial institutions. Over time, the insolvency rate will normalize as both the relief programs and payment deferrals end, says Charles.
The federal budget comes out April 19th and will hopefully include measures that stimulate and accelerate recovery in specific areas, says Charles. As we mentioned earlier, the pandemic has not affected everyone equally – there is a big divergence in recovery between different sectors of the economy and also different segments of the labour market. For example, hospitality and tourism are not doing as well as real estate. Job losses are affecting younger workers, women and those with lower incomes because those are the people who are primarily employed by the affected sectors. To avoid economic scarring, the budget should address that divergence and how to close the gap, says Charles.
Did you know Alberta’s labour market is one of the most diversified in Canada? We were surprised too! (We wrote a whole blog post on it – check out What is economic diversification and what does it mean for Alberta?) However, our production and income diversification is among the lowest in Canada and even less diversified than some oil-producing US states. Because our revenue is largely dependent on an ever-fluctuating oil and gas industry, diversification often comes up in discussions. We could focus on developing other industries such as tech, but that process can take a lot of time. We could also look at diversifying the energy industry to make it less volatile, such as becoming leaders in carbon capture, geothermal drilling and even wind and solar power. Whatever the path forward, we need to have discussions on both increasing revenues and cutting spending to tackle the provincial deficit situation, says Charles.
Here is the full video for more details.
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