It’s not exactly a full-fledged recovery, but economic indicators are finally pointing positive for Alberta’s economy and that seems to be enough for the Bank of Canada.

The central bank, spurred on by the first signs of a rebound in the country’s main oil producing province, is widely expected to raise interest rates as early as Wednesday. That will probably be followed by another increase later this year.

That puts to bed a three-year exercise in crisis management that saw policy makers run the economies of Toronto, Vancouver and Montreal hot in order to buy the country time to recover from falling oil prices.

It could be a thankless victory. Albertans, barely out of a deep recession, can do without the higher borrowing costs and rising currency. In Toronto and Vancouver, resentment over real estate bubbles and debt accumulation could linger for years.

And Governor Stephen Poloz’s reward? He’ll be back to where he started in 2014 — concerned about weak productivity, challenging demographics, sluggish business investment and exports and trying not to tilt the economy into a recession as he returns rates to more normal levels.

Alberta Rising

The Bank of Canada seems to be putting quite a bit of weight on the rebound in Alberta.

Senior Deputy Governor Carolyn Wilkins kicked off the hawkish comments by saying the recovery had broadened to more industries and now included even the hard-hit energy regions like Alberta.

Bank of Canada officials have also indicated that the two rate cuts in 2015 that brought the central bank’s benchmark rate to 0.5 per cent have done their job.

Wilkins used a recent staff paper that created a “nowcasting” model of the economy, showing energy-rich regions like Alberta had moved into an upswing. That model relied on recent monthly data that show solid gains. Manufacturing has climbed 16 per cent from a year earlier, and retail sales have returned to more normal levels.

Deputy Governor Lynn Patterson also went to Calgary on June 28 to deliver the message that the energy shock is fading away. Bond investors are showing confidence in the recovery. The premium investors demand to buy the province’s debt fell to the lowest in almost two years.

Because the weakest players in the oil and gas industry have been culled, those that remain are pretty resilient and could survive even if oil prices slip a little further below US$50 a barrel. Signs the tide has turned in the oil patch include the first year-over-year gain in oil and gas capital spending since 2014, after expenditures had been cut in half during the slump.

The national rig count has more than doubled from a year ago, the biggest rebound in seventeen years. Economists are predicting the western province will grow by about 3 per cent this year. It’s a big swing for an economy that shrank by almost 4 per cent in each of the last two years as the energy industry that makes up about a third of gross domestic product cratered.

“Alberta is likely to have the strongest provincial growth among all regions this year, demonstrating that the adjustment to lower oil prices has largely taken place,” said Craig Alexander, chief economist at the Conference Board of Canada in Ottawa. “The implication is that, at the minimum, the Bank of Canada should return the overnight rate to 1 per cent.”

Flip Side

At the same time, no one would mistake this for boom times either. Employment levels in Alberta are still down from records, and what jobs have been created are in lower paying services. Over the last three years, Alberta is still down 96,300 jobs in goods production.

Plus, about a quarter of growth this year is related to a normal bounce back from the hit taken last year from wildfires in the province, said Michael Dolega, senior economist at Toronto-Dominion Bank. The recovery “will be a shallow one,” Dolega said.

Look no further than Calgary’s office vacancy numbers. According to Calgary Economic Development, the city has a 25 per cent downtown office vacancy rate, five times the level in Toronto, with the cheapest rents among major Canadian cities.

Bloomberg.com