First comes the economic talk, because there is plenty of deficit debate lurking around the corner in Alberta.

The province’s economy remains in good shape, projected to outperform the rest of the country, said Alberta’s finance minister.

With another budget coming this week that is widely expected by analysts to include a hefty deficit, economic growth is welcome, particularly if it comes with more jobs and a lower unemployment rate.

“We expect to lead the country in GDP (growth) again, but the population growth will definitely slow. I wish I had a crystal ball when it came to the price of oil,” Finance Nate Horner said Wednesday in an interview.

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“We continue to be the fastest skater on a slow team across this country.”

On Thursday, Horner will release the provincial budget for the 2026-27 fiscal year, one that economists anticipate will come with more red ink as the price of oil remains well below the US$74 a barrel level that Premier Danielle Smith has said is needed to balance the books.

In a report this week, Servus Credit Union chief economist Charles St-Arnaud forecast the province could be staring at a $9.8-billion deficit, if benchmark U.S. oil prices remain around US$60 a barrel for the new budget year, which starts April 1.

“That’s quite a big deficit to have in a moment where actually the economy is not in a recession,” St-Arnaud said Wednesday.

“The Alberta economy is actually in a relatively good place . . . What’s going on? It’s really that oil prices are much lower than what was budgeted (last year) and what would be needed to balance the budget.”

Entering this year, U.S. West Texas Intermediate (WTI) crude was plodding around $57 a barrel, but with geopolitical turmoil in Iran in recent weeks, it moved higher, closing Wednesday at $65.42 a barrel.

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That’s important for the province’s bottom line, as every $1 change in the price of WTI crude over the course of the budget year — according to last February’s budget — alters provincial revenues to the tune of $750 million.

A day before his new budget comes out, Horner was keeping details of the fiscal blueprint under wraps, but discussed the state of the economy. He pointed to a number of issues that drove GDP growth last year, including red-hot housing construction and record oil production.

In January, Alberta created 20,000 jobs, and the unemployment rate fell to 6.4 per cent, just below the national average. And 86,000 more people were working in the province last month than the same month in 2025.

“We created (almost) 25 per cent of the jobs across Canada for a population of 12 per cent,” Horner said.

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“We’re also expecting, partly due to a slowdown in population growth and high participation in the labour market, that we will see the unemployment rate come down.”

However, there is plenty of volatility on the horizon, from fickle commodity markets to the review of the Canada-United States-Mexico trade agreement this summer.

Last month, BMO Economics forecast Alberta’s economy will lead all provinces in GDP growth this year and next, increasing by 2.3 per cent in 2026 and 2.5 per cent the following year.

In its second-quarter fiscal update released in November, the government forecast a $6.4-billion deficit for the 2025-26 fiscal year, which ends March 31. At that time, the government lowered its oil price forecast for the current budget year to $61.50 a barrel, down from last February’s $68 projection.

The forecast price differential between benchmark WTI crude and Western Canadian Select heavy oil was also narrowed. Every $1-a-barrel drop in the discount over a full year generates an additional $740 million in revenues, according to last year’s budget.

“Danielle Smith is dealing with royalty revenues that are five times what (former NDP premier) Rachel Notley had . . . the highest oil production there’s ever been, and they can’t balance the budget,” Alberta NDP Leader Naheed Nenshi told reporters at the legislature on Wednesday.

On the trade front, Alberta is facing the lowest effective U.S. tariff rate among provinces — around three per cent — as most of its oil and gas exports are exempt under CUSMA, but Horner said the upcoming review “is a major risk.”

One number that will be closely watched is the province’s new oil price forecast. The finance department usually consults with a number of forecasters and experts before it makes its own call.

“The one thing we’ve seen is just (with) the industry forecasters, the range is so wide,” Horner added. “We’ll try to land in a reasonable mid-ground.”

The new fiscal plan comes as British Columbia released its own budget last week projecting a record $13.3-billion deficit. Nova Scotia’s budget, unveiled earlier this week, contained a $1.19-billion in red ink.

What does seem likely is this will be the second steep deficit in a row for the UCP government. The province’s fiscal framework requires Alberta to return to a balanced budget within three years of posting a deficit.

And credit rating agencies will be analyzing this week’s budget to see how the province handles the expected revenue volatility.

“One of the things I’m watching is what is the assumption around oil or energy prices,” said Adam Hardi, a vice-president with Moody’s Ratings.

“And perhaps more importantly, whether the province continues to rely on a windfall, essentially from oil revenues, or is there a more credible long-term plan to wean off that reliance.”

Hardi pointed out Alberta’s debt burden is lower than other provinces and it has built in significant contingency funds in its previous fiscal plans.

And the big question is, even with a strong economy, what will Alberta’s game plan be to return to balanced books?

“The big focus is, how does Alberta respond,” said Douglas Offerman, senior director with Fitch Ratings agency.

“Alberta fundamentally has exposure to volatility, primarily through energy. And so this will be the first big test of Alberta’s fiscal guardrails.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

© Calgary Herald