Challenges remain, but momentum building in Alberta economy

EDMONTON - Two years after the Great Recession ended, Alberta's energy-fuelled economy is again flexing its muscles.

With oil prices tripling from their 2009 lows, drilling activity on the upswing, unemployment falling and oilsands investment surging, Alberta looks poised for a new growth supercycle.

In fact, compared with the beleaguered U.S., the debt-ridden economies of Europe or the sluggish growth in Ontario and Quebec, Canada's energy superpower looks like a rising star once again.

Just don't call this new growth cycle a boom - at least not yet. There are still nagging patches of weakness and some serious challenges ahead, both from within and beyond Alberta's borders. To wit: The U.S. recovery remains fragile, China's supercharged economy is slowing, and the 27-month-old bull market in equities looks as if it may be running out of gas.

Moreover, the province continues to run large budget deficits; natural gas prices remain abysmally low; lumber prices are in the ditch; housing starts and house prices are flat; and interprovincial migration, which peaked in 2006, is just starting to rebound.

"Boom would probably be an appropriate term if there weren't all these clouds on the economic horizon," says Craig Wright, chief economist at RBC Capital Markets.

"Last year the story was continued upward revisions to global growth. Now that story has run its course, and we're starting to see many central banks in emerging economies putting the brakes on," says Wright, who expects Alberta to lead the country in growth in 2011.

"There is a risk they'll go too far and we'll see a sharper slowdown than we're expecting, so global growth could come down and then you'd see some fallout in commodity markets, which would take some of the boom out of the boom."

Those aren't the only worries. The oilsands also face stiff opposition from the green lobby and some members of Congress, who hope to slow further mine expansion and derail plans for pipelines that would carry bitumen to the Gulf Coast and Canada's West Coast.

Without this new capacity, billions of dollars of future investment, tax and royalty revenues could be at risk, and Alberta's oil riches might never reach China or other fast-growing Asian markets. Economic threats aside, the B-word has also become something of a toxic term for many Albertans.

With memories of the savage 2008-2009 downturn still fresh, and dreams of a burgeoning Upgrader Alley east of Edmonton sharply scaled back, the current mood is less ebullient and more realistic than it was in 2007.<%2