What’s next for Alberta’s economy?

What’s next for Alberta’s economy?

Albertans are bracing for several more months of bad economic news and belt tightening amid depressed oil prices, but the province won’t fall into a recession as some economists predict, according to a local economic forecast.

ATB Financial’s second quarter outlook says the Alberta economy will slow to growth of 0.8 per cent this year, due to a rise in unemployment and drop of investment in the province’s key energy sector.

Fewer people will also move to the province for work,which means less consumer spending, and housing construction will cool off.

Still, ATB isn’t forecasting a recession, saying there’s growth in other sectors such as agriculture, forestry and tourism thanks to the depreciating Canadian dollar and the rebounding U.S. economy.

“Even with the drag set to weigh on theeconomy, an outright contraction remains somewhat unlikely,” says the report from the largest Alberta-based financial institution.

ATB Financial chief economist Todd Hirsch says it will be a challenging year, but that Albertans “shouldn’t panic.“ The province has seen much worse, he says, including during the 2008-09 global economic downtown.

“There is some worry and anxiety in the province. People are uncertain about what comes next. There is insecurity around jobs. It’s normal and it’s unpleasant,” says Hirsch. “But for people who’ve been in Alberta for some period of time, there’s almost more of an eyeball roll rather than doom and gloom, because we’ve been through this before. People understand that this is a normal part of the cycle and that these things never last forever. The province generally comes out of it in better shape.”

ATB is calling for Alberta’s GDP to increase 1.7 per cent in 2016 and rise 3.1 per cent in 2017, which compares to 3.7-per-cent growth last year. It expects the unemployment rate to rise to 6 per cent this year, and then fall to 5.8 per cent in 2016 and 4.9 per cent in 2017. That compares to an unemployment rate of 4.7 per cent in 2014. The provincial unemployment rate is still expected to be among the lowest in the country.

Others predict more doom than boom

ATB’s outlook for Alberta is rosier than some others that have cropped up in recent weeks.

CIBC said recently it expects a mild and short-lived recession in Alberta, forecasting the economy will shrink by 0.3 per cent this year, and unemployment will rise to 6.8 per cent. It then sees Alberta’s economy bouncing back to growth of 2.3 per cent in 2016, alongside an expected recovery in oil prices.

Others are more pessimistic.

The Conference Board of Canada is forecasting Alberta will experience a sharp “V”-shaped decline in the first half of 2015, followed by a “Lazy U”-shaped recovery into 2016. It’s calling for the province’s GDP to contract by 1.5 per cent this year.

"The party appears to be over in Alberta, at least over the medium term, as low oil prices send chills through the economy,” said Marie-Christine Bernard, associate director at the conference board, in a recent release.

"In the next couple of years, a return to 4 per cent-plus growth is not in the cards,” she added, saying oil prices will not return to triple-digits any time soon “under current market conditions.”

Crude prices have fallen by more than half since June, to around $50 (U.S.) per barrel, which has led to a huge drop in royalties and payments from the industry to the government. The provincial government said recently it expects royalties to fall to around $2.89 billion in the fiscal year starting April 1. That’s compared to $8.79 billion this fiscal year, according to its latest budget tabled last week.

The provincial government is coping with the lost revenue by proposing several fee and tax hikes and cuts to health care and education. Alberta Premier Jim Prentice said the province plans to post a budget deficit of nearly $5 billion for the fiscal year starting April 1, and $3.05 billion the following year. That’s in contrast to a $248 million surplus for fiscal year that just ended, according to a report on the budget from Reuters.