Business and community leaders gathered Oct. 5 to hear Adam Legge, director of research and business information at Calgary Economic Development, and Don Drummond, senior vice president and chief economist at TD Bank Financial Group share their insight into the state of the local and national economy for the coming year at the 2007 Economic Outlook luncheon at the Westin Hotel in Calgary.

While 2007 is forecasted to be a strong year, it was dully noted that the booming growth of 2006 would not likely be equaled.

“Alberta’s economy is red hot at the moment,” said Drummond. “The interesting question is whether it will repeat the more traditional boom-to-bust cycle. TD Economics believes growth will slow but the bust will be avoided because of a number of positive economic and policy developments.”

Legge agreed, and in his presentation outlined the forecasted numbers relating to growth, the business sector, housing and immigration. And while he said they wouldn’t likely reach the same heights as in 2006, healthy growth shall still occur.

He explained that there are numerous external drivers that will impact the opportunities for economic growth in Calgary over the next year.

These include falling commodity prices in the U.S. and the overall U.S. economy performance.

“There is a generally widespread consensus that the U.S. economy is heading for, if not already into, a slowdown,” Legge said.

The main contributor to that includes a cooling down of the U.S. housing market.

While it’s slowing down, Legge said general thoughts are that the slowdown will likely rebound by the end of 2007.

Because the U.S. economy accounts for over 20% of the world economy, it impacts everywhere else, especially Canada.

In Calgary, key sectors are expected to continue to perform strongly, Legge said.

The energy sector will do well with major projects in the north, and energy prices are forecasted to remain elevated by the end of next year.

Construction will continue in both residential and non-residential markets, he noted.

And Calgary’s location should continue to drive the transportation and logistics sector.

While gross domestic product numbers will fall from 2006 from 6.6% to 3.9%, Legge assured that the latter is still very healthy growth, adding that 2006 was a record year for Calgary in many senses, so anything will likely appear less prosperous.

Inflation is estimated to grow by 2.7% for 2007, while it was 3.7% this year.

As for population growth, Legge said it would be difficult to bypass the 2006 numbers, as this year was a record year especially for net migration.

In total, the population of Calgary grew by nearly 36,000 people, with almost 26,000 net immigrants.

In 2007, it’s expected to be a total of around 20,000 with about 10,000 to 12,000 net immigrants.

“With healthy in-migration, continued low interest rates and wage gains, housing demand in Calgary should still be significant,” Legge said.

The Conference Board of Canada forecasts 15,000 housing starts in 2007, down from 17,500 forecasted in 2006, but that’s still within the upper range of the five-year historical.

Legge said that while the future remains bright, there are a few economic pressures that are causing economists to be cautious when forecasting the next year.

“The level of optimism about Calgary, both by the local community and by analysts of our economy, remains high into 2007,” he said. “Calgary will lead Canada in performance of urban economies in 2007 as forecasted by the Conference Board of Canada.

“While the outlook for Calgary is positive, the slower sustainable growth allows for more breathing room. However, we remain cautious due to the three pressure points.”

Those pressure points, Legge outlined during the conference — none of which “appear to be near resolution or mitigation in any significant way in 2007” — are labour shortages, office space shortages, and affordable housing.

Legge explained that while the unemployment rate is expected to increase slightly in 2007, labour shortages are not likely to improve significantly in the next year.

“Some may say that the claims that the sky is falling have come true, and while the sky is not falling, talk to any business person or HR person about their labour situations, and I’m sure that you’ll hear they’re experiencing difficulty in retention and attraction.

“Anybody who drives down Macleod Trail or walks through a mall and doesn’t see the labour shortage isn’t reading the signs,” he told luncheon attendees.

The Conference Board of Canada forecasts Calgary’s employment growth for 2007 to be by 1.9% overall, down from the 7% forecasted for 2006.

However, Legge assured that 1.9% is still a healthy level of growth.

The unemployment rate is predicted to rise up to 3.7%, slightly above the 2.4% forecasted for 2006.

While numerous office space projects are scheduled for completion in 2007-2008, and many more announced or underway, Legge said the demand remains strong with “few options, particularly in the downtown high quality contiguous segment.”

CED’s Office Market forecast, released in June 2006, estimated a need for an additional 5.4 million sq. ft. of office space to satisfy demand by 2010.

“At present, it does not appear that Calgary will reach this figure with all the new projects under construction,” Legge said, adding that it will likely take three to five years before the pressure is eased in this area.

The third pressure, and according to Legge, a critical point, is the issue of affordable housing.

“Entry level home prices are now a step above, making it difficult for first time homebuyers to get into the market,” he noted.

“The prices are unlikely to drop and with no new rental units scheduled in 2007 this ultimately becomes a competitive issue and a quality of life issue.”

Legge explained that the lack of affordable housing affects the City’s ability to attract new workers, and therefore makes it difficult to address the labour shortage.

However, even taking in account the pressure points, 2007 looks to be a very strong year for the City’s economy.

“Calgary will lead Canada’s major urban centres in 2007 from an economic performance perspective,” Legge said.

—#8212;Angela Anderson is a Calgary Real Estate News reporter.