Edmonton (Alta.) - 1987-2000 - Socio-economic forecasts_1993-1998, City of Edmonton (1993-03-22)

Edmonton. City Forecast Comm.

Edmonton. Planning and Development Dept.

Socio-Economic Forecasts 1993-1998 City of Edmonton

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Socio-Economic Forecasts

1993-1998 City of Edmonton Prepared by the City Forecast Committee March 22, 1993

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PLANNING AND W

EEIMIflDEVELOPMENT

Harvey Crone (Chairman) Acting Manager. Policy & Information Planning & Development Department

Shaun OFarrell Senior Engineer Public Works

Dana Okiwa Energy Forecast Supervisor Edmonton Power

George Diadio Social Planner Community & Family Services

Sam Patayanikorn Economist Edmonton Power

Lynfa Jones Senior Planner Parks & Recreation Department

Rick Hersack Research Manager Economic Development Edmonton

Don Pilling Fire Protection Engineer Fire Department

Allan Brownlee Supervisor of Forecasting ' Transportation Department

Bev Burke Manager, Personnel Services Personnel Department

Ron Harris Inspector Police Service

Bob Mills Department Controller Public Works

Nila Chowdhury Senior Budget Consultant Corporate Budget Office

Rob UUah Planning Analyst ED TEL

Christina Ionescu Economist Pinance Department

Donna Egglestone Financial Planning Analyst ED TEL

Jong Huang Senior Economist

Patrick Walters Economist

Planning & Development Department

Planning & Development Department

For more information contact:

Jong Huang Senior Economist Policy & Information Branch Planning & Development Department (Phone: 496-6068) S(Fax: 496-6104)

0

Implications

The Bank of Canada will maintain its inflation target rates of 2% to 3%

per year over 1993-1996.

A slowly growing economic base, declining resource revenues and provincial transfer payments, and increasing municipal service costs should exert pressure on the local tax base and the level of municipal services.

The prime interest rate will average 7.0% in 1993, 7.5% in 1994 and 8.0% in 1995 to 1998.

1. Edmonton Economy

Forecasts The Canadian and Alberta economies are undergoing structural changes. These changes result from the Canada-U.S. Free Trade Agreement, increased globalization, increased public concern for environmental protection, aging of the population, huge public and private debts and the Bank of Canada's policy on price stability. In addition, lower energy prices have brought about continued rationalization and downsizing of the oil and gas industry. All levels of government, faced with sharply reduced revenues, are implementing fiscal restraints and service cuts.

The forecasts incorporate these structural changes and assume that: *

World oil prices will average US $20 to US $24 per barrel and Alberta natural gas prices $1.46 to $2.00 per gigajoule over the 1993 to 1998 period.

The Edmonton economy should follow the provincial growth path over the forecast period. Positive net migration and stable natural increase will contribute to Edmonton's population growth. The population should grow by 1.3% per year from 618,000 persons in 1992 to 667,000 persons in 1998.

Edmonton's employment will increase from 370,000 in 1992 to 391,000 in 1998, or 0.9% per year. The unemployment rate will remain at the 1992 level of 11.0% for 1993 and drop marginally to 10.5% in 1994 and 9% in 1998.

Inflation in Edmonton will increase marginally from 1.8% in 1992 to 2.0% in 1993 and then average 2.5% a year over the rest of the forecast period.

Housing starts will total 3,500 units in 1993, down from the 1992 level of 3,887 units, and then rebound to 4,000 units a year for the rest of the forecast period.

Building permit values will reach $550 million to $650 million in 1993-1994, rising

Socio-Economic Forecasts 1993-1998- 1

to $630 million to $730 million in 19961998.

Residential land servicing for single family houses will average 2.500 lots per year over the 1993-1998 period. This is a slight drop from the 1992 level of 2.563 lots. There will be no significant servicing of multi-family lots because there is an ample supply.

Industrial land servicing was 6 ha in 1992 and will average 10 ha per year over the forecast period. Commercial land servicing was 9 ha in 1992 and will also average 10 ha per year over the period. Commercial land servicing will centre along the major highway corridors.

Apartment vacancy rates went up from 2.3% in 1991 to 4.0% in 1992 as first time home buyers took advantage of lower mortgage rates, lower down-paymnents and use of RRSP funds. The vacancy rate will fall marginally to 3.5% in 1993 and 3.0% over the rest of the forecast period.

1992 will gather momentum, pushing up Alberta's growth rate to 3.5% in 1993 and 1994 and then down to 3.0% a year in 1995-1998 as interest rates rise.

Alberta should have positive net migration of 6.000 to 8.000 persons peryear over the forecast period. The positive net migration is a result of Alberta's relatively low unemployment rate compared to other provinces and the higher international migration quota. Continued positive net migration will have beneficial impact on housing demand and retail sales, but a negative impact on unemployment rates in Alberta and Edmonton.

3. Canadian Economy

The downtown office space vacancy rate rose to 14.4% in 1992 from 13.7% a year ago, because higher business failures and downsizing of industries reduced office space requirements. The rate will reach 15% in 1993-1994 before dropping to 14% in 1995 and 13% in 1996-1998.

Canadian economic activity has been very weak because of low consumer and investor confidence. However, reduced interest rates will stimulate consumer spending and business investment, especially in the interest-sensitive sectors. These sectors include housing, major household appliances and automobiles. The improving American economy will boost the export sector. The Canadian economy is expected to grow at 3.0% in 1993 and 3.0% to 3.5% per year over the 1994-1998 period.

2. Alberta Economy

4. Social Issues

Alberta's economic performance in 1992 was hampered by weak public and private spending, and slow economic activity in other parts of Canada and the United States. However, lower interest rates, a lower Canadian dollar and the recovering American economy will Increase investment in the residential construction and manufacturing sectors. The recent increases in natural gas prices have resulted in increased drilling activity. The expansion of the Pacific Gas Pipeline and stronger economic growth in the UnitedStates will increase Alberta's gas exports.

The economic recovery that began in mid-

Changing concepts of the family, an aging population, poverty, growing ethnic diversity, housing affordability, funding of services and family violence will continue to be important social issues that the City of Edmonton will face during the 1993 to 1998 period. Municipalities, faced with greater and more diverse demands and constrained budgets, require more flexible responses, innovative services and improved efficiency.

Socio-Economic Forecasts 1993-1998- 2

~DETAILED

FORECAST8

the 1993 - 1998 period as the oil and gas industry continues restructuring.

*

This report provides a forecast of major economic and social indicators for the years 1993 to 1998. The forecast will be used as a reference for preparation of the 19941998 Capital Priority Plan and the 1994 Operating Budget. Civic departments could use this document for strategic and

Resource revenues were about $5 billion in 1984/85 and by 1991/92 they fell to about $2 billion. As the oil and gas industry. continues to rationalize its investment activity, provincial resource revenues will remain below historic levels. As a result. the province will continue to experience operating deficits and increase the

corporate planning. In addition, other public agencies, citizens and businesses

accumulated government debt over the medium term. Moreover, this situation

could use the forecasts for various purposes.

could be exacerbated should the federal government continue to control its debt by reducing transfer payments to the provinces. The provincial deficit was estimated at $2.76 billion for the 1992/1993 fiscal year.

The City Forecast Committee undertakes three stages of monitoring and forecasting activities throughout the year. A full

forecast report is prepared in February/March. Civic departments use this report to prepare their capital priority plan. The full report is then reviewed and updated in May for all departments to prepare their annual budgets. An update to the tables in the report is done in October for reference by the Council Budget Committee in their review of departmental budgets. _An

Most forecasters and economic analysts forecast that the Alberta economy will experience modest economic growth over

This difficult financial picture will result in expenditure cuts, tax increases or a combination of both. Expenditures on education, social services and health account for the major portion of the province's budget. As a result, any attempt by the province to cut expenditures is likely to reduce transfer payments to hospital boards, school boards and municipalities. imposition of new taxes will result in a reduction of consumer disposable income.

This will have an adverse effect on overall economic activity as consumers reduce their spending.

0 Socto-Economic Forecasts 1993-1998-3

The economic base of the City of Edmonton will grow modestly over the forecast horizon as the local economy adjusts to slower growth in the national and international environment. Businesses and households will grow at slower rates. As a result, the municipality's tax base will increase at a slower pace. The local unemployment rate is expected to remain high as labour force growth matches employment growth. In spite of the high unemployment rate, the City will continue to benefit from continued positive net inter-provincial migration, as the rest of Canada experiences relatively higher rates of unemployment. In addition.

Alberta and Edmonton will continue to benefit from higher international migration.

This will place added pressure on the City's services, The municipality will continue,to face a steady demand for serviced larid in order to house a growing population. In addition, the City will face a growing demand for resources to replace obsolete infrastructure.

The combination of a slowly growing

economic base. declining transfer payments and increasing municipal costs sets the stage for increased pressure on the local

year is expected to be at 3% and remain at 3%-3.5% over the 1994-1998 period.

The Alberta economy performed poorly in 1992. However, stable oil prices and rising natural gas prices have increased drilling activity in Alberta. Stronger economic growth in the rest of Canada and the United States will stimulate export activity in Alberta. Economic activity in Alberta. therefore, is expected to expand by 3.5% in 1993 and average 3.0% to 3.5% per year for the 1994-1998 period.

Over the forecast period 1993-1998, Alberta is expected to have an unemployment rate below the Canadian average and as a result, Alberta will continue to benefit from positive net inter-provincial and international migration over the 1993-1998 period.

The following sections provide details of the forecasts:

Economic Forecasts 1. Edmonton

tax base. *period

The Canadian economic recovery is weak by historic standards, constrained by low consumer confidence, ongoing Job layoffs. high levels of consumer and government debts, poor business investment prospects and limited export stimulus from the weak American economy. However, the lower interest rates will encourage consumer and business spending and increase economic activity. This, together with increased exports to the United States. will translate into higher economic growth for Canada in 1993 and after. Economic growth for this

The Edmonton economy will have modest growth as the Alberta economy over the 1993-1998. The Edmonton inflation rate will increase slightly from 1.8% in 1992 to 2.0% in 1993 and 2.5% in 1994 and after. The low rate of inflation results from the Bank of Canada's price stability policy and poor labour market conditions.

Socio-Economic 1993-1998- 4 Forecasts

Socio-Economic Forecasts 1993-1998-- 4

1992 with weak consumer and government

Edmonton Inflation Rate

spending and low business investment.

However, the low interest rates are expected to stimulate investment in the

8

residential construction and manufacturing

5

sectors. The recovery that began in mid-

4

1992 is expected to gather momentum in

%3

therefore, will grow by 3.5% in 1993 and

1993 and after. The Alberta economy.

1994 and then taper off to 3.0% in 19951998 as interest rates increase.

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0

Alberta Economic Growth 92

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4 The Edmonton unemployment rate is expected to be lower than the national unemployment rate. As a result, interprovincial and international migration will expand the local labour force. The Edmonton unemployment rate will remain at the 1992 level of 11.0% in 1993 and will

decline very slowly to 10.5% in 1994 and

10 8 .problems

% 4 2 94

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For the non-energy sectors, the strong investment in machinery and equipment, pipeline construction and pulp and paper industries is expected to continue into 1993 and 1994. But the agriculture sector, which has experienced a downturn since late 1980s, may continue to have low price in the early 1990s. Recovery is expected in 1994/1995 assuming a favourable outlook for grain prices and an increase in agricultural production and demand for grains.

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091

Edmonton Unemployment Rate

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2

95

9.0% in 1998.

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3 %

98

2. Alberta The Alberta economy grew by only 0.6% in 1991. This is the third consecutive year the economy expanded by less than 1.5%. The poor economic performance continued into

The oil and gas industry has been under constant pressure to downsize since 1986 because of lower world oil prices and reduced profits. The industry has substantially reduced its employment and

scaled down its operation. Drilling activity in Alberta in the first quarter has significantly decreased from 353 rigs drilling in 1986 to 204 rigs in 1991 and further down to only 114 rigs in 1992.

Socto-Economic Forecasts 1993-1998- 5

Canada Economic Growth

However, the recent surge in the natural gas price has resulted In a higher level of drilling activity. A strong demand for natural gas in the United States and the

expansion of the Pacific Gas Pipeline will

3

increase gas exports from Alberta.

2

There are signs that nvestment opportunities. in particular for the construction industry, will increase as interest rates continue to decline.

However, lower rates will have only modest impact on current consumer spending due to poor labour market conditions and high consumer debt.

Alberta enjoyed positive net migration of 15.190 persons n 1991 and 8,140 persons in 1992. The migration gain of about 6.000 to 8.000 persons per year is expected throughout the forecast period. Alberta will continue to benefit from positive net migration from other countries and other provinces except British Columbia. This forecast is based on the relative strength of the Alberta labour market as compared to other provinces and the Federal Government's policy of higher quotas for international migration in the future.

Continued positive net migration will have a favourable impact on housing demand and retail sales, but a negative impact on unemployment rates in Alberta and Edmonton.

3. Canada

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The combination of attractive mortgage rates, lower minimum down payment requirements, use of RRSP contributions for house purchases and lower house prices will boost the sale of houses. This should stimulate further sales of nterest sensitive retail items such as household appliances and furnishings.

The national unemployment rate is expected to remain above 10% as a result of strong labour force growth and low employment gains. The high unemployment rate will moderate wage demands, creating the potential for improved business profits.

Improved profits will enable businesses to pay down accumulated debts, improve productivity, and return to higher levels of investment in 1993 and after.

The Canadian economy is expected to

The Canadian economy is unlikely to receive any stimulus from higher

record a modest growth in 1993 after

government spending during the coming

faltering n 1992. Canada's real gross domestic product dropped by 1.7% in 1991 and grew by 0.9% in 1992. The economy is expected to grow by 3.0% in 1993, 3.5% in 1994 and average 3% a year over 19951998.

fiscal years. A further tightening of expenditures is expected in light of the evidence that the federal and several provincial deficit reduction targets will not be reached during the 1992-1993 fiscal year.

The recovery will be led initially by exports. particularly to the United States. In 1993. consumer spending should respond to -lower interest rates, more employment and higher incomes from employment gains,

Other downside risks to the Canadian economic recovery include: (1) a possible drop in consumer confidence resulting from persistently high unemployment rates; (2) the Bank of Canada's inability to maintain

Socio-Economic Forecasts 1993-1998- 6

•

stable prices. interest rates and the value of the Canadian dollar; (3) an erosion of business profits caused by weak or falling commodity prices; (4) capital losses as a result of possible deflation in some sectors; and (5) a further stalling of spending and investment decisions as a result of unresolved national unity issues and fear of economic fragmentation and instability.

Population Forecasts As a result of continued positive net migration and stable natural increase over the next five years. Edmonton's population Is expected to grow at a rate of approximately 1.3% per year, increasing from 618,000 persons in 1992 to 667,000 persons by 1998.

•

The population distribution will change within the city. with the inner city share declining relative to the suburban areas.

The share of inner city population will drop from 57% of total population in 1992 to 53% in 1998.

Edmonton Population (thousands of persons)

age 14 and under will fall from 21% in 1992 to 20% in 1998.

Development Activity Forecasts Building permit values increased 2.1% to $624 million in 1992 from $611 million in 1991. In 1993, permit values are expected to total $550 million to $650 million and increase to $630 million to $730 million in 1996-1998. However, these totals could be influenced by the timing of several major projects.

Total city housing starts in 1992 increased 52% to 3,887. However, continued population growth through positive net migration and a number of favourable economic factors will combine to keep housing starts at 3.500 units in 1993 and then increase to 4,000 units per year for the rest of the forecast period. These factors Include low apartment vacancy rates, low mortgage rates, reduced minimum down

payment requirement and allowable use of RRSP fund for house purchases.

Edmonton is experiencing a declining share of new single family housing construction within the metro area. as Strathcona County and St. Albert have proven attractive locations. This competitive situation will reduce Edmonton's share of the modest move-up market.

Edmonton Housing Starts 5000 4C00 31300 Following the national trend, the city population will continue to age. The population with age 65 and over will Increase from 9% of total population in 1992 to 11% in 1998. The population with

2C00 1000 0

11111 111111

AIø4 IøAI11IØA IØAI , 92 93 94 95 96 97 99

Socio-Econornic Forecasts 1993-1998— 7

Residential servicing in 1992 was estimated at 2.563 single-family lots. Continued low interest rates should have a positive affect on the housing market and as a result land servicing for single family lots is expected to average 2,500 lots for each year of the forecast period. In the short term, the decline of the serviced single-family lot inventory has resulted in higher lot prices and a limited supply of lower priced lots.

This has diverted new housing construction to adjoining municipalities. No significant servicing of multi-family lots is anticipated because the existing supply is ample.

Industrial servicing activity was 5.7 ha served in 1992. For the 1993-1998 period, a slightly higher industrial servicing activity is expected with an average of 10 ha serviced per year. Absorption will average 20 ha per year for the same period. The supply of serviced industrial land is large enough to meet any significant' increase in absorption.

Only 9.2 ha of commercial land was serviced in 1992, mainly along the major highway corridors. An average of 10 ha per year of commercial land is expected to be serviced over 1993-1998.

Apartment vacancy rates went up from 2.3% in October 1991 to 4.0% in October 1992 as first time home owners took advantages of lower mortgage rates, lower down payments and use of RRSP funds.

The vacancy rate is expected to fall marginally to 3.5% in 1993 and 3.0% over the rest of the forecast period.

Social Forecasts During the 1993 to 1998 period, the City of Edmonton will continue to face many important social issues. These issues include changing concepts of the family, an aging population, poverty, growing ethnic diversity, concerns about safety, housing affordability, funding of services and family violence.

Single-parent family formations continue to occur more rapidly than total family formation. In 1986. single parent families accounted for 15.1% of all families in Edmonton. This proportion is expected to reach 18% by 1998. Approximately 85% of single-parent families are female-headed, with incomes averaging less than 60% of those of two-parent families.

The average age of the population is increasing. Edmonton had 9% of its population in 1992 aged 65 and over, this percentage is expected to rise to 11% by 1998. Per capita requirements for health and other social supports and services will increase faster. This is because seniors are living longer and the needs of these "older" seniors are more extensive than of those in their 60s. While government transfer payments and better retirement planning have resulted in many seniors being better off financially. 36% still required the support of the Guaranteed Income Supplement in 1992. There is also indication of growing income disparity within the seniors' age group. Elderly

The downtown office space vacancy rate

single women have benefitted little from

rose to 14.4% in December 1992 from 13.7% a year ago, because higher business failures and downsizing of corporations reduced office space requirements. The rate will reach 15% in 1993-1994 before it decreases to 14% in 1995 and 13% in 1995-1998.

these changes and continue to be in high risk of poverty. Seniors wishing to remain independent in their own homes will continue pressure on Home Care and other home support services. Waiting lists will grow in auxiliary hospitals and other facilities that provide health-related care.

The present generation of seniors and those who will become seniors within the next decade is very different from the

Socio-Economic Forecasts 1993-1998- 8

generations of seniors who came before them. They are better off financially and possess more knowledge, skills, expertise and the willingness to be involved with their community, organizations and governments. Recent surveys by Statistics Canada show that over half of all seniors are involved in political organizations while nearly a quarter are active in their communities and other local groups. To access and use these talents is the challenge for social service and other organizations, Poverty continues to be a reality among Edmonton citizens. In 1992, monthly social allowance cases in the city neared 35.000.

With the expected economic recovery to be "productivity-driven," there will not be enough new Jobs available to the families dependent on public assistance. These families will need help for longer periods.

The "working poor"' constitute another. mostly undocumented, group living in or close to poverty. High unemployment and low minimum wage levels keep these fully employed workers at or near poverty levels, This situation is expected to get worse in the near term. While new Jobs are being created, many of these are part-time, offering comparatively low pay, few benefits and little possibility of advancement. Many such Jobs are filled by women who have children at home, working to help attain adequate family income. Based on the 1991 Federal Census, two-thirds of all such women with children at home were active in the labour force, and 69% of those with children under 6 years of age. This represents a substantial increase from the 1986 Census figure and has profound implications for day-care and out-of-school care availability and policies. Although vacancy rates in day-care and out-of-school care services are now high, this has been attributed to marginally employed parents being unable to afford the cost, not to decrease in need.

Europe have declined as a proportion of the total and those from Asia and South/Central America have increased.

Helping these newcomers to become acclimatized to a new country and culture will require increased outreach and community development activities. The existing Canadian population will also need help to accept these new immigrants and the cultural differences they bring with them. As with senior citizens, the new immigrants also pose a challenge. Those who have the strength, will and ambition to leave their home countries and start anew are often the brightest, best educated and most enterprising. Their previous country's loss can be Canada's gain. The challenge will be to involve them positively in their new communities, to make the best possible use of their diverse viewpoints.and talents, and to help them become useful and contributing citizens.

Aboriginal people will continue migrating to the city over the forecast period.

Governments and social services will need

to recognize their intentions to manage their own social service systems and work toward integration and coordination.

Needs and demands for services will grow with increasing population. While "downloading" of services from other levels of government will likely continue, grants to local governments will likely be freezed or reduced. This requires rethinking of the ability of municipalities to maintain present service levels or take on additional service responsibilities.

Obtaining affordable housing by lowincome households will continue as a significant problem. More than 26,000 households in Edmonton with incomes of $15,000 or less pay 30% or more of their income for housing. Many households in older neighbourhoods live in substandard housing. This is due partly to lack of maintenance, resulting from owners' financial problems.

Sources of immigrants to Canada and Edmonton have changed. Those from

Socio-Eco ic Forecasts 1993-1998- 9 Socto-Econornic Forecasts 1993-1998- 9

Recent estimates suggest that over 800 low-income persons are "homeless" or living in emergency shelters. Other estimates, which are difficult to prove, suggest that half of these may be teen-aged "street-kids."

This represents social problems greater and more numerous than homelessness alone.

demands from increasingly sophisticated citizenry. This requires flexible responses. innovative services and improved efficiency in the face of growing needs and constrained budgets.

CAG

Family violence is a serious social problem estimated to affect one in eight families.

Statutory services are available to children who are physically and sexually abused, but services to women in such circumstances are still inadequate. For the perpetrators of violence and for children affected by such abuse, services are nearly nonexistent. Another disturbing reality is the elderly abused by their children, other caregivers or individuals. A holistic and coordinate approach with long-term strategies will be required to prevent the adverse and costly effects of these various types of family violence, Nearly one third of the students who enter high school do not complete grade twelve.

Sixteen percent of the Canadian population lack basic literacy skills. Unskilled and semi-skilled jobs have decreased while higher skills are required for better jobs.

The need for major changes in Job training will affect all governments and the private sector, as our society prepares for the competitive and technological requirements of the next century.

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Structural Changes The Canadian economy has experienced below average growth over the 1990-1992 period. This has led several economists to suggest that economic growth is being influenced by a combination of structural changes to the economy's environment.

These changes result from the following factors: 1. Free Trade Agreements

On the positive side, there is increased participation by Edmonton citizens in the planning and implementation of services

Removal of tariff barriers, as required in the Canada-United States Free Trade Agreement, has resulted in multi-national firms rationalizing their North American operations. Firms are no longer required to locate their operations in Canada to serve the Canadian market. Instead, location decisions are based on production and distribution costs. The 1990/1991 cyclical downturn in the North American economy

that affect them. Citizens are no longer

has sped up the rationalization process by

content with governments making decisions on their behalf. They are becoming more directly involved, adding their growing expertise to these processes. As well, while volunteerism in Canada as a whole is decreasing, volunteers in Edmonton are maintaining and even increasing their contribution of time and knowledge in diverse areas.

causing some Canadian based companies to shift their operations to the United States.

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In summary, during this forecast period and beyond, municipalities will face greater

Canadian consumers have taken advantage of the Free Trade Agreement to shop in the United States. This reflects in the initial sharp increase in the number of one-day trips to the United States in 1991 and the first part of 1992. Same-day trips have since dropped after the Federal Government started collecting GST on all

Si-Economic 1993-1998- 10 Forecasts

Socio-Economtc Forecasts 1993-1998-- 10

*

goods purchased from the U.S. and the value of the Canadian dollar fell. In addition, several major American retailers are supplying merchandise, through mail order, to Canadian shoppers. These, combined with the economic recession, has resulted in reduced retail sales activity and the rationalization of the retail sector.

The North American Free Trade Agreement (NAFTA) between Canada, the U.S. and Mexico will bring about a further restructuring of the North American economies. The adjustments that were experienced under the Canada-U.S. Free Trade Agreement are expected to continue under NAFTA. As a result, some Canadian companies will relocate their firms to Mexico to take advantage of lower labour costs.

2. Globalization

*

The world is becoming increasingly interdependent. This is evidenced by the removal of tariffs among nations, the linking of capital markets and the integration of computers and telecommunications technology. As a result, a country's economy becomes vulnerable to shocks in the international environment, In this global environment, capital becomes more mobile. For businesses to succeed in this environment, entrepreneurs have to become cost competitive.

3. Government Finance The late 1980s and early 1990s have witnessed a progressive deterioration in government finance. For example. in 1966 the Canadian government had a budgetary surplus of 0.6% of the GDP; by 1986, it had a budget deficit of 2.6% of GDP, which rose sharply to 5.5% by 1991. This statistic is much higher than for the U.S. (2.5%), Germany (3.9%) and Japan (had a 2.3% surplus).

In Alberta. the provincial budget deficit was estimated at 3.4% of GDP for the 1992/1993 fiscal year. This was higher than the average for all the provinces (2.9%).

The total federal and provincial government debt in Canada is estimated at $665 billion, of which approximately $300 billion are owed to foreigners.

The 1992/1993 Province of Alberta budget shows that 67% of the total budget is expended on social services, health and education. The consolidated budget for these departments shows that 91% of total expenditures are allocated to grants.

Any serious attempt to control the deficit would result in a significant reduction in grants allocation. School boards, hospital boards and municipalities will be negatively affected by any reduction in grants.

4. Federal and Provincial Elections Elections are expected in Canada and Alberta in 1993. As a consequence, much uncertainty surrounds the future direction of economic policy. For the purposes of this forecast, no change in government economic policies is assumed.

5. Consumer Debt and Confidence The current economic recovery is weak compared to historic standards, as a result of lagging consumer confidence. High household debts and high unemployment rates have hampered consumer confidence.

The Bank of Canada estimates Canadian household debt at $364.1 billion in January 1992 and by November 1992, it rose to $386.7 billion. Over the same period, total residential mortgage debt increased from $264.8 billion to $288.0 billion. These high levels of consumer debt will have a negative impact on consumer's ability to spend in the future At the same

Soco-EconoicForecasts 1993-1998- 11 Socio-Economtc Forecasts 1993-1998-- 11

time, the consumer is worried about job security as businesses and governments are continuing to reduce employment,

factor in assessing the viability of investment. With price stability, asset depreciation is a possibility.

6. Environmental Movement

Assumptions Affecting the

Increased public consciousness about environmental protection in the 1980s and 1990s has changed the ways businesses and individuals use the environment.

Environmental resources are no longer regarded as free goods. As a result, assessments are sometimes required of the possible impacts of production and consumption activity on the environment.

Industries such as paper and energy are faced with growing demands for environmental improvements in their operations. This could delay completion and increase costs for some projects.

Forecasts Assumptions have been made for the following external factors considered to have the most impact on the Alberta and Edmonton economies:

1.

Energy Sector

The reduction in Alberta's oil and gas royalty announced by the government on October 13. 1992 will stimulate the Alberta energy industry and increase revenue, employment and investment. As a result,

7. Aging of the Population

government resource revenues will reduce

As a result of the sharp increase in the Canadian birth rate after the Second World War and the decline in these rates in the 1970s and 1980s, the average age of the Canadian population has increased. The aging of the population has important implications for the functioning of the economy. For example, as the mid-1990s approach, baby boomers will have attained their high earning years and as a result, will represent a source of major spending for the economy. In addition, fewer individuals will be available to fill entry level positions in the labour market.

The oil price for West Texas Intermediate (WTI) at Chicago averaged US$21 per barrel in 1992. The price is expected to average US$20 to US$21 in 1993 and 1994. Over the medium term, it is assumed that OPEC increases production due to the restored capacity in the Middle East, and the demand for crude oil will be slightly weak following a slow economic recovery in industrial countries. Further, OPEC is assumed to be able to maintain a limited control over the world oil market during the

while the energy industry's cash flows will increase, beginning in 1993.

forecast period. The forecast, in nominal

US$ per barrel, for West Texas Intermediate 8. Monetary Policy

(WTI) at Chicago is US$22 in 1995, US$23

Over the last several years, the main objective of the Bank of Canada has been the achievement of price stability. This the chieemet ofpr~e stbilty. bisfirst objective appears successful since inflation in Canada has dropped significantly to around 2% per year. The achievement of price stability will affect the way business is conducted in the economy. For example, is conducted in the economy. For example, entrepreneurs take asset appreciation as a

The fieldgate price (the average market price) of natural gas declined during the half of 1992. But with colder first half of 1992. But with colder temperatures and some gas delivery problems through the winter months, the price rose to over CAN $2.00 per gigajoule in the fourth quarter, bringing the average prctoCN$.1frheya.Ason price to CAN $1.31 for the year. A strong

Socto-Economic Forecasts 1993-1998--- 12

in 1996 and rises to US$24 in 1998.

followed an equally solid 3.4% growth rate

World 011 Price

in the previous quarter.

USbatw

30 25 .365,000

20

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15 10 5 0

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97

98

demand for natural gas is expected in the Western United States. With the expansion of the new pipeline by the Pacific Gas Transmission Company and the strong demand, more natural gas exports from Alberta are forecasted. The natural gas price is expected to rise steadily to $1.46/GJ in 1993, $1.55/GJ in 1994 and $2.00/GJ in 1998.

Another positive sign is the decline in the unemployment rate to 7.0% n February, 1993 from 7.1% in the previous month.

According to the US Labour Department.

Jobs were created in February, although most of them temporary. This is the largest one month increase in four years. However, some analysts argue that the decrease in the unemployment rate was due largely to discouraged workers dropping out of the labour market.

The economy is expected to advance by 3% in 1993. The United States economy in 1993 faces a number of constraints, which include: 0

weak consumer confidence arising from plant closures, Job losses and stagnating personal income;

0

an overbuilt commercial real estate market, characterized by high vacancy

rates; Alberta Natural Gas Price

($/GJ)

*

large personal and federal government debt; and

*

reduced private sector lending, reflecting a weak banking sector.

2

The American economy is expected to gather momentum in 1994 as economic growth climbs to the 3 to 4% range. The features should strengthen the economy:.

1.5 1

-following

0.5 0

2.

92

93

94

95

96

97

*

Improved consumer confidence, arising from a falling unemployment rate and healthier consumer balance sheets:

*

the effect of the recent easing of monetary policy should provide a boost to consumer and housing demand; and

98

United States Economy

The American economy expanded in the fourth quarter of 1992 at the fastest pace since 1987. The Impressive recovery resulted in 4.8% annual growth in gross domestic product in the quarter. This

13 Socio-Econoic 1993-1998---13 Socio-Economtc Forecasts Forecasts 1993-1998--

*

the mild fiscal stimulus by the Clinton government could lead to firmer recovery,

3.

Consumer Impact on the Economy

Some analysts are doubtful about the consumers' ability to assist in the economic recovery as consumers are burdened by debt and frightened by the prospect of Job losses. On the other hand, consumer confidence was boosted by the rapid decline of the banks' prime interest rates, spurring consumers into making major purchases.

This viewpoint bears more detailed consideration.

There is no doubt that some people have been spending less, but not in favour of increased savings, the usual economic response to recession. In fact, people are finding their real incomes declining, due to lower wage settlements alongside increases in taxation and benefit contributions. In addition, although average individual incomes are holding steady, household incomes decline as many two-income families suddenly become one-income families, Along with the reality of lower disposable incomes, spending patterns are readjusting to reduce high levels of consumer debt.

Although interest rates are more attractive, people are reluctant to take on new debt.

Inflation is also a factor in spending decisions. The Bank of Canada has

rates have encouraged business investment, the current tendency towards investing in machinery and equipment falls into this pattern. However, this form of investment is unlikely to increase employment since businesses are trying to control labour costs and increase productivity. Immediate improvement in consumer spending may contribute to longterm economic stability, but is a risky premise for short-term recovery. If businesses rely on the consumer to create an improved economic climate, growth will be more moderate and the recovery pace will be slower.

4.

Major Industrial Projects and

Diversification of the Alberta Economy Investments in major industrial projects shielded the Alberta economy from the national recession. These projects, in combination with the recent housing boom, provided the impetus for positive real growth in recent years.

During the past five years, over $8 billion worth of these industrial projects was completed in our service areas. The next five years will yield an additional $7 billion in developments, 70% of which are under construction at this time.

In the oil and gas sector, completion of Husky Oil Operations Limited's Lloydminster upgrader and Shell Canada Limited's Caroline gas plant now provide

committed to further reductions in

more "upstream" opportunities and

inflation. This policy will discourage consumers from making purchases of major items until prices have "bottomedout." Some people are opting to pay down existing mortgages and loans, both to insulate themselves against the current economic instabilities and to prepare for more favourable future conditions,

stimulus to the economy.

The reduction of interest rates and inflation has been successful at the cost of higher unemployment. Traditionally, lower interest

Socio-Economic Forecasts 1993-1998- 14

Recently completed chemical and petrochemical projects such as Du Pont Canada, Canadian Oxy Chemicals, Albchem Industries Ltd., Sterling Pulp Chemicals and Alberta Envirofuels Inc. total $665 million. These projects are also adding to Alberta's growth and creating new employment demand.

Other projects such as Diashowa-Marubeni International Ltd.'s Peace River Pulp Mill, which was completed in 1991. have resulted in a substantial increase in Alberta's annual economic output. These projects, plus others, have been critical to economic growth and diversification in Alberta and Edmonton.

Alberta-Pacific Forest Industries Inc.. Millar Western Pulp Ltd.. Diashowa-Marubeni and Weyerhaeuser Canada Ltd., recognizing Edmonton's strategic position and the strength of its service and supply sector, established national or regional headquarters in Edmonton. Grande Alberta Paper Ltd. has made a similar commitment.

In addition, the Canadian Forestry Association has designated Edmonton as the forestry capital of Canada for 1994.

This is the first time that a major urban centre has received this distinction.

moving beyond harvesting the resource and shipping it elsewhere for upgrading. The industry will be adding value to the product in the region and generating additional economic activity in northern Alberta.

The first phase of the Grande Alberta Paper project is valued at $900 milli6n. Based on experience with other recent forestry developments. Alberta content can account for 55% of the project. This translates into $495 million. As with other developments. the majority of procurements will be made locally.

In addition, the existing eight major pulp and paper mills in northern Alberta have total annual operating expenditures of approximately $720 million. A good portion of these expenditures are made in Metrp Edmonton.

Current industrial projects under construction, including capacity expansions to Suncor Inc.'s oilsands plant, the TransCanada pipeline system and Nova Corporation of Alberta's gas gathering network, are a further source of economic stimulus. Construction also continues on the $800 million Dow Chemical and the $357 million Alberta and Orient Glycol (Union Carbide) expansions.

Dow Chemical reports total annual operating purchases of about $400 million.

Of this, approximately $200 million goes directly into the Edmonton area economy.

Celanese Canada Inc. sets its annual purchases at $60 million. At the new Alberta Envirofuels plant, management predicts that annual purchases will run to $150 million.

In the forestry sector, investment continues on the $1.3 billion Alberta-Pacific project and a $1.6 billion pulp and paper project was recently announced by Grande Alberta Paper Company. With these two projects, northern Alberta's forestry industry has made a significant and crucial step of

Forecasts 1993-1998- 15 Socio-Economic Socio-Economtc Forecasts 1993-1998-- 15

Tal 1 A SeuletdEooiFoeas 1992

1993

1994

1995

1996

1997

1998

21.0

20.0

21.0

22.0

23.0

23.0

24.0

1.31

1.46

1.55

1.65

1.75

1.85

2.00

CANADA AND ALBERTA World Oil Prices (U.S. $/Barrel)

Gas Prices (Can $/GJ) Economic Growth Rate Alberta (%) Canada (%)

1.5(e) 0.9

3.5 3.0

3.5 3.5

3.0 3.0

3.0 3.0

3.0 3.0

3.0 3.0

Prime Lending Rate (%)

7.5

7.0

7.5

8.0

8.0

8.0

8.0

Alberta Net Migration (000)

8.1

8.0

8.0

6.0

6.0

6.0

6.0

Population (City) (000)

618

625

634

642

651

659

667

Employment (CMA) (000)

370

372

376

380

384

387

391

Unemployment Rate (%) (CMA)

11.0

11.0

10.5

10.0

9.5

9.2

9.0

1.8

2.0

2.5

2.5

2.5

2.5

2.5

4.0

3.5

3.0

3.0

3.0

3.0

3.0

14.4

15.0

15.0

14.0

13.0

13.0

13.0

3,887

3,500

4.000

4,000

4,000

4,000

4,000

624

550 650

550 650

580 680

630 730

630 730

630 730

EDMONTON

Inflation Rate - CPI (% (CMA) Vacancy Rate (City) (%) Apartment (Oct.) Downtown Office (Dec.) Housing Starts (City) (Units)

Building Permits (City) (Current $ Millions) * Low " High

Sources: 1992 actual: Statistics Canada, Alberta Bureau of Statistics, Bank of Canada, Canada Mortgage and 1.

Housing Corporation, Colliers Macaulay Nicolls Inc.. Edmonton Planning and Development Department, and Canadian Petroleum Association. 2.

1993-1998 forecasts: City Forecast Committee, March 1993 estimated = (e)

0

Age Group

Actual 1992

1993

1994

1995

1996

1997

1998

0- 4

47,800

47.600

47.400

46.600

45.700

45,200

44.800

5-

9

44.300

44.500

44,800

45.700

46,200

46.400

46,300

10- 14

38,200

39.800

41.400

42.300

43.300

44.100

44,400

15- 19

38,500

38.100

38.900

40,600

42,100

43.500

45,200

20 - 24

56,000

54.800

53,200

51,000

48.900

48.300

48.200

25 - 29

62.300

60.100

58.900

58.100

58.600

58.700

57,800

30 - 34

64.400

64.500

63.900

63.100

61.100

59.300

57.400

35 - 39

56.100

58.300

60.400

61,500

63.000

63.400

63.700

40 - 44

43.700

45.400

47,600

50.300

53,000

55.700

58.000

45 - 49

33.500

35.300

37,100

39.300

41.400

42.700

44.500

50 - 54

27.100

28.100

28,900

29.700

30.700

32.500

34.300

55 - 59

24.800

24,700

24.800

25,000

25.400

25,900

26.900

- 64

23.600

23.600

23.400

23.200

22,900

22.800

22.800

65 - 69

20,100

20.400

20,900

21.200

21.600

21.600

21.700

70 - 74

15.400

16,400

17,400

18.000

18.500

18.800

19.200

75 -79

10.600

11.100

11.400

11.800

12.600

13,600

14.500

80 - 84

6.700

7.200

7.800

8.400

8.900

9.400

9,800

85+

5.100

5,400

5,900

6.400 1-

7,000

7,400

8.000

618,200

625,500

634,000

642,300

650,900

659,300

667,500

-

1.500

3.000

3,000

3,500

3.500

3.500

-

5,800

5,500

5,300

5,100

4.900

4.700

7,300

8,500

8,300

8,600

8,400

8,200

TOTAL Net

Migration Natural Increase

Total

ncras Increase

Source: Planning and Development Department, November 1992 Note: Figures are rounded.

0

Actual 1992

1993

1994

North

419

460

500

Northeast

634

440

West

343

Southwest Southeast

Sector

TOTAL

1996

1997

1998

570

570

570

570

440

460

460

460

460

580

540

570

570

570

570

348

480

520

490

490

490

490

819

540

500

410

410

410

410

2.563

2.500

2,500

2.500

2.500

2,500

2.500

1995

Source: Edmonton Planning and Development Department, March 1993

Actuaf

1992

Industrial

Commercial

Total

(ha)

(ha)

(ha)

5.7

9.2

14.9

10.0

10.0

20.0

Forecasc 1993-98 (per year)

Sources: "

(2

Edmonton Planning and Development Department, Edmonton Public Works Department, March 1993 Edmonton Planning and Development Department. March 1993

_

Map 1 City Sectors

_

T-Northeast North

i

l-.

Inner City

Westa vIT WHM

$4OORIvE

---Southeast _

.

So thNest -

I

AN

9

,W