Calgary’s economy is expected to return to a more sustainable level in 2008. According to the 2008 Economic Outlook released by Calgary Economic Development (CED), it will be a level of economic growth slower than last year, yet one that is very healthy and the “envy and desire of any city around the world.”

Though the brakes are being applied to Calgary’s record breaking growth two years ago, the outlook for 2008 remains very optimistic with economic development tapering off to more sustainable levels that will not resemble a typical “boom and bust” cycle, said Adam Legge, Director of Research and Business Information for CED.

“Slower growth is not a bad thing, it does not mean negative growth,” said Legge. “In essence, it is actually a good thing.”

Calgary Economic Development, in conjunction with TD Bank Financial Group, hosted a luncheon last week to give the good news to over 700 stakeholders in the Calgary and area business community.

“Consider Calgary’s economy as a high performance runner,” said Legge. “It is in top shape, strong and healthy. Our economy ran flat out in 2006 to achieve a personal best; 2007 and 2008 are the wind-down jog bringing the heart rate back down to a normal level. We are performing well, but showing signs of stress and strain from over-exertion.”

Not only is Calgary’s economy full of momentum, it is essentially at capacity, says the report.

The 2007 forecast included three pressure points on the economy: labour shortages; office space shortages; and affordable housing shortages. The picture is unchanged for 2008, as these pressure points are still concerns with little significant movement or resolution coming over the next 12 months.

These three pressure points will continue to exert a brake on the economy, and continue to challenge Calgarians and Calgary business, said Legge.

“All of the pressure points add up to one outcome: inflation,” he said. “The average Calgarian, and the average Calgary business is struggling under a higher cost environment. Whether it be for a house, office space, or workers, it is all costing more.

“And while inflation is often a signal of intense economic activity, it is dangerous at high and prolonged levels. Calgary simply can’t afford it — literally and figuratively,” he added.

Calgary’s higher housing costs and limited rental housing should serve to curb in-migration and slow population growth, resulting in population growth for 2008 between 22,000 and 25,000 people.

“Calgary’s population growth should continue to remain healthy, as the youthfulness of Calgarians results in more babies,” said Legge. “Yes, we are having our own little baby boom in Calgary and the economic appeal of Calgary continues to draw more in-migrants.”

Continued high demand for labour, yet constrained supply should bring employment growth in at 2.5 to 3% over 2008.

“The labour situation is Calgary’s biggest and most significant challenge,” said Legge.

Calgary is in for the long haul and in global competition for labour, he added. The labour shortage is not a short term condition as a result of a heated economy and companies need to consider a variety of options to meet their needs, including increased focus on retention and development, technology and automation and the use of foreign workers.

Inflation should moderate in 2008 to 3 to 3.5%, with price escalation of the main contributor to our high inflation—#8212;housing—#8212;slowing to more reasonable levels. Housing markets fundamentals remain healthy and in place, however slowing in-migration and the plethora of listings should bring housing starts between 13,500 to 14,000 in 2008.

“Calgary’s higher cost environment, particularly for housing, labour and real estate, will ultimately serve as a key dampening force on the economy over 2008,” said Legge.

The report also said given the slowing trend of Calgary’s economy, uncertainty around natural gas prices, and an unclear picture of how the United States’ economy will perform in 2008, Calgary’s real GDP growth is forecast at 3.3 to 3.8% in 2008.

“Calgary has the opportunity to build upon its enviable standard of living position, thanks in large part to a highly educated and incredibly energetic workforce,” said Don Drummond, chief economist of TD Bank Financial Group. “But as our report suggests, the city is experiencing growing pains that could impact future prosperity. Look no further than the city’s aging infrastructure and growing homelessness. Now is the time for leaders in both the public and private sectors to tackle them head on.”

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

The energy sector will remain strong in 2008 and continued high oil prices should provide a lift to the oil patch and support continued drilling and oil sands project investments. Soft natural gas prices in 2007 and perhaps into 2008 will create uncertainty as to how the gas side of the sector will perform this year. As well completion is down nearly 20% over last year.

Transportation and logistics has driven a significant amount of economic and land development activity in Calgary over the past few years and should continue to be active in 2008, however rising land costs for this land-intensive activity could pose a barrier to investment and expansion.

Assuming stabilization in the United States, Calgary’s financial services sector should be on track for a strong performance in 2008.

The manufacturing sector, on the other hand, is expected to suffer through 2008 thanks to a persistent high Canadian dollar, increasing wage costs, tight labour markets and expensive and limited real estate.

The 2008 Economic Outlook also included results from the 2007 Calgary Business Survey which looked to determine the importance of various factors to economic growth and to indentify possible barriers to future growth in Calgary.

According to the survey, the Calgary business community top three concerns facing the city today are lack of affordable housing, access to skilled labour and slow growth to infrastructure, respectively.

--Dan Leahul is the Calgary Real Estate News resident reporter.