OTTAWA, Sept. 23, 2015 /CNW/ – Following impressive growth of 5.1 per cent last year, Calgary's economy is expected to contract by 0.5 per cent in 2015 due to the dramatic drop in energy prices, according to The Conference Board of Canada's Metropolitan Outlook: Autumn 2015.
“Oil sector woes are rippling across all sectors of Calgary's economy. Construction and oil and gas extraction output will fall, while manufacturing and services activity will slow this year,” said Alan Arcand, Associate Director, Centre for Municipal Studies. “Economic growth should resume next year as oil prices recover somewhat, although the expansion will be limited to 1.8 per cent.”
HIGHLIGHTS
The resources, agriculture and utilities sector, which includes oil and gas extraction, is expected to shrink by 1.6 per cent this year, before rebounding with a 2.7 per cent increase in 2016. Alberta's active rig count declined by nearly 60 per cent between mid-December 2014 and mid-August of this year. At the same time, the agriculture sector is facing difficulties from lower-than-average rainfall.
The downturn in the oil industry is also affecting Calgary's manufacturing sector. Fortunately, some of the impact will be mitigated by a weaker loonie, which makes Canadian goods more attractive abroad, and a strengthening U.S. economy. As a result, the manufacturing sector is projected to keep expanding in 2015, albeit at a weak 0.7 per cent. As oil prices begin to recover somewhat next year, manufacturing output growth should improve to 2.1 per cent.
The services sector is also not immune to lower energy prices as growth is expected to slow to a modest 1.3 per cent in 2015 and to 2.4 per cent in 2016. In particular, business services output is being hard hit by head office cutbacks of many energy companies. Moreover, slumping consumer confidence, weaker job market activity and slowing net migration will hit output in wholesale and retail trade, which is set to shrink by 1.3 per cent. These same factors will result in a sharp decline in housing starts. Local builders will break ground on fewer than 13,000 units this year, following a record 17,100 units in 2014. Looking ahead to 2016, the decline in home construction is expected to continue as ongoing weakness in the job market curbs demand further.
Energy sector investment will also tumble as a result of the drop in oil prices. However, non-energy, non-residential investment activity is expected to remain relatively busy in the short-term with projects such as the $3-billion StoneGate Landing mixed-use commercial development, the $1-billion Brookfield Place, and the $500-million Oxford Airport Business Park. Unfortunately, this will not be enough to counter the decline in housing starts and the drop in energy-related investment. As a result, construction output is projected to contract by 8 per cent this year and another 5 per cent in 2016.
Of the 13 CMAs covered in the report, Vancouver will have the fastest growing metropolitan economy in 2015. Toronto, Winnipeg, Halifax, and Montréal round out the top five spots. These cities are all on track to post economic growth above 2 per cent. In contrast, long-standing economic leaders Calgary and Edmonton face recession.
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SOURCE Conference Board of Canada