Alberta can't avoid a recession this year

OTTAWA, May 28, 2015 /CNW/ - Although oil prices seem to have stabilized, Alberta's economy will post an overall decline in real gross domestic product (GDP) this year, according to The Conference Board of Canada's Provincial Outlook: Spring 2015.

"Alberta's economic performance will be underwhelming this year and next, especially compared with recent years," said Marie-Christine Bernard, Associate Director, Provincial Forecast, The Conference Board of Canada. "Oil prices remain well below break-even levels for most new projects in the oil patch, and conditions are not expected to turn around until sometime next year."

HIGHLIGHTS

• Alberta's economy is expected to contract by 0.7 per cent this year. Growth is forecast to resume next year, albeit at a moderate 1.1 per cent.
• Despite the dramatic drop in oil prices, the negative impact on Alberta's economy will be less severe than during the 2008–09 global recession and financial crisis.
• Housing starts have remained at elevated levels over the first four months of the year.

In all, the drop in oil prices will have a more modest impact on Alberta's economy than it did during the 2008–09 global financial crisis. Real GDP is forecast to contract 0.7 per cent this year. Next year, Alberta's economy is expected to grow by a moderate 1.1 per cent as the health of the oil sector gradually improves.

The steep reductions in oil-patch investments are evident in the number of oil drilling rigs in operation. Drilling was down 44 per cent during this year's crucial winter season compared with the same period a year ago.

Resulting job losses in the construction and mining sectors, estimated at about 24,000, will hurt the housing market and retail sales.

On the positive side, the oil and gas sector has built a lot of capacity through its past investments, which is beginning to pay dividends in the form of higher production. Non-conventional oil production continues to flow south to refineries along the Gulf Coast, where demand for heavy oil remains high.

Moreover, outside the energy sector, the job market seems to be holding up relatively well. As a result, the unemployment rate in the province is expected to average 5.6 per cent this year—roughly 1 percentage point higher than in recent years but below where it was during the last oil price shock.

New measures that could be introduced by Alberta's recently elected government have not been included in our forecast, as details have yet to be announced. Over the past 10 years, the provincial government has derived, on average, 29 per cent of its revenues from the resource sector, mostly in the form of oil and gas royalties. Government revenues will be under pressure this year, not only from lower resource royalties, but also from reduced corporate income taxes.

As Alberta, Saskatchewan, and Newfoundland and Labrador continue to deal with the impact of low oil prices, other provinces are leading the country in economic growth in the short term. Economic growth is expected be strongest in British Columbia, Manitoba, and Central Canada over the next two years.

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SOURCE Conference Board of Canada

Image with caption: "2015 economic growth by province (CNW Group/Conference Board of Canada)". Image available at: http://photos.newswire.ca/images/download/20150528_C8000_PHOTO_EN_17137.jpg

Yvonne Squires, Media Relations, The Conference Board of Canada, Tel.: [phone] ext. 221, E-mail: [email protected]; Juline Ranger, Associate Director of Communications, The Conference Board of Canada, Tel.: [phone] ext. 431, E-mail: [email protected]