Alberta Economic Recovery Contingent on Rebound in Oil Prices - BMO



    CALGARY, June 25 /CNW/ - Alberta's economic boom quickly went bust after
oil prices collapsed late last year, and housing and consumer activity
followed suit, according to the Provincial Outlook report from BMO Capital
Markets Economics.
    "Real GDP will likely contract 2.7 per cent this year, with an
above-average 2.2 per cent recovery likely in 2010," said Robert Kavcic,
Economist, BMO Capital Markets.
    As is usually the case, other economic indicators in Alberta hinge on the
direction of oil prices, and the current picture is about as bad as it has
been since the early 1990s. "The unemployment rate has surged above 6 per
cent, retail sales have plunged more than 12 per cent year-over-year in the
largest decline on record, and housing markets have suffered a painful
retreat," noted Kavcic. "That said, if the recent rebound in oil prices
persists as forecast, these indicators will begin to recover as we move
through 2010."
    The collapse in energy prices, combined with high input costs and tighter
credit conditions, put the brakes on energy-sector development over the past
six months. Indeed, cancellation and delay announcements point to investment
activity in the oil sands that is about half last year's level, contributing
to an expected 14 per cent decline in overall capital spending intentions in
the province this year. Meantime, the Petroleum Services Association of Canada
is forecasting a 43 per cent decline in drilling activity in 2009, largely due
to still-low natural gas prices.
    However, two factors will likely support Alberta's energy sector as we
move into 2010. First, a global economic recovery should continue to support
already robust commodity price rebounds. At the same time, input costs in the
province have fallen sharply thanks in part to a significant slackening of the
labour market, pulling the break-even price on marginal oilsands projects down
to about $60 from nearly $100 at the height of the boom.
    The Province of Alberta is forecasting a $4.7 billion deficit this fiscal
year, after an estimated $1.4 billion shortfall in fiscal 2008/09-the first
deficit in 15 years. Deficits are forecast for the next two fiscal years
before the budget returns to surplus in fiscal 2012/13, but underlying the
figures in fiscal 2010/11 and beyond is a commitment to take $2 billion in
additional corrective action (i.e.: spending cuts or tax increases if revenues
don't improve). Capital spending will actually decline slightly this fiscal
year, though the four-year Capital Plan was increased by 4.5 per cent to $23.2
billion; the province has already been engaging in hefty infrastructure
spending, a legacy of the boom years.
    The complete report can be found at www.bmocm.com/economics.





For further information:

For further information: Media Contact: Laurie Grant, Vancouver,
laurie.grant@bmo.com, (604) 665-7596, Internet: www.bmo.com


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