Alberta’s economy is still on the road to recovery from where it was a couple of years ago and the province’s business community is cautiously optimistic regarding what will happen next.
Currently, there are three major issues driving the cautious optimism, says Ray Crossley, the managing partner of PwC’s Calgary office.
First, there continues to be a level of uncertainty around what’s happening in the economy. The International Monetary Fund recently forecast that Canada’s economy would grow 3.1% this year and 2.7% in 2011. While Canada is still expected to lead economic growth among the G7 nations, those expectations are down from a previous forecast.
Secondly, commodity prices are giving off mixed signals. The price of oil has yo-yoed between US$70 and $95 a barrel over the past 12 months. And natural gas prices have been trending downward for the better part of the year.
And third, there’s the question regarding how strong the U.S. economy is. There have been a number of bumps in the last few months and the unemployment rate has hovered around 10%. As a result, business leaders are a little bit uncertain.
“There’s a whole level of angst of how much growth there’s going to be and what that’s going to mean for Alberta businesses,” Crossley notes.
Business leaders are not as optimistic as they were two years ago when the price of crude jumped above $140 a barrel. But on the other hand, he says, it’s not as bad as it was a year and a half ago when credit markets were basically frozen and lending came to a standstill.
What has arisen over the last two years is a general mistrust of the financial system that wasn’t there before. There used to complete trust in the system for about a generation.
“When people saw that there was a potential for the financial system not to work, all of a sudden it introduced a level of uncertainty that was not there previously,” says Crossley. “That’s why this [past] recession was a little bit different from every other one since the Great Depression.”
As businesses have become more guarded, they are doing things differently. On the capital projects side, they’re taking a much more structured approach. Three years ago, the goal was to complete them as quickly as possible because high crude prices would take care of any problems with labour efficiency or cost overruns.
That approach is gone. It’s now much more about getting things done on time, on budget, and getting things done as quickly as possible to minimize the risk of big cost overruns. Also, labour issues are moving to forefront for many businesses in Alberta in terms of productivity and availability. So businesses are really looking at their ability to control costs while also looking to ensure their operations can keep pace. That means ensuring enough workers and enough capital to keep up with increasing demand for the province’s resources.
When the economic turmoil happened, there was a real frenzy in the market. There was an excess of liquidity in the market and that has gone away. This changes the strategies companies are employing to keep costs down while growing their business. It also means a certain amount of increased mergers and acquisition activity.