In Canada’s economy there’s Alberta, then there’s everywhere else. The oil- and gas-rich western province added 81,800 jobs over the last 12 months, while the rest of Canada lost 9,500. Canada’s jobless rate is 7.1 percent, Alberta’s 4.9 percent. Alberta’s trade surplus, C$7.4 billion ($6.8 billion) in May, almost matched the trade deficit rung up by all the other provinces. Growth in gross domestic product for Alberta, forecast at 3.5 percent this year, beats projected growth for the rest. The province is drawing thousands of young people, most in search of energy jobs that pay in the six figures. It has been “effectively the lone driver” of recent housing starts in Canada, the Bank of Montreal (BMO) estimates. Alberta’s per capita gross domestic product will reach C$88,000 next year, C$35,000 more than the rest of Canada, Toronto-Dominion Bank (TD) economists predict.
The rise of Alberta poses a challenge to policymakers. Oil wealth has strengthened the Canadian dollar, battering exports by Ontario and Quebec, the two provinces traditionally at the center of the nation’s economy. Canada’s central bank is keeping interest rates near historic lows, helping to weaken the currency. The policy has boosted local demand, but the Canadian dollar is still strong enough to blunt industrial exports. Alberta oil producers are selling heavy oil derived from tar sands at $78 a barrel. Almost all their customers are in the U.S., where local per-barrel prices range from $90 to $106.
“We see a two-track economy,” Bank of Canada Governor Stephen Poloz told reporters on July 16 after he extended the longest pause in interest rate hikes since the 1950s. Canada’s non-energy exports have disappointed, he said, while energy exports have been strong. “Right now we don’t have a sustainable growth picture in Canada,” said Poloz.
The two-tier model threatens a decades-old federal policy to make manufacturing the heart of Canada’s economy. A 1965 pact established a single U.S.-Canada market for autos, and a 1988 free-trade agreement to wipe out tariffs on goods traded by the two nations was later expanded to include Mexico. Now Ontario, long the most populous province, has been hurt by cutbacks at the Canadian plants of automakers such as General Motors (GM) as well as the general manufacturing slump. The province has always bounced back. But the dynamism of Alberta could eventually threaten the primacy of Ontario.
Prime Minister Stephen Harper, who represents part of the Alberta city of Calgary in Parliament, foresees C$650 billion going to Canadian natural resource projects over the next decade. One would be a 731-mile pipeline to ship Alberta’s oil to the Pacific coast, where tankers can take it to Asia. With China as a customer, Alberta could be Canada’s hot spot for years.