Author: Jacques Marcil
Alberta’s economic outlook for 2009 points to further decline before a recovery takes place. Oil and gas prices have apparently hit a floor and recovered to a certain degree in May (especially oil), but the US and world economies have not exhibited the same resilience – economic news is still more negative than positive.
Forecasters agree that Canada’s economy will shrink in 2009, and while recessions are not the best time for forecasts, there is a consensus that Alberta’s economy will do worse than the Canadian average this year. In fact, so far in 2009, economic indicators such as employment and investment are consistent with a scenario that will see Alberta as one of the hardest hit provinces this year. As to 2010, the expected return to growth in the US, although no one knows how dynamic that growth will be, should help Alberta gain back some of the lost ground.
Readers must keep in mind that there are risks associated to this forecast. Among them, there are the unknowns regarding the implementation of a new US energy policy. However, many signs point to a rebound in energy prices. Canada West Foundation is forecasting that Alberta’s real GDP will decline by 2.4% in 2009 and grow by 1.9% in 2010.
Alberta’s current downturn is not like previous slowdowns. In the past, disruption in the oil and gas sector caused several major downturns in Alberta while things were going pretty much as usual elsewhere in Canada. In other times, energy resources have acted as a buffer for Alberta’s economy, allowing it to keep growing while the rest of the country faced dire straits (witness the years 1991-92, over which Canada’s GDP declined by 1.2% while Alberta’s grew 1.4%).
When Canada West Foundation reviewed Alberta’s economy in the spring of 2008, it mentioned that “without a doubt, some aspects of the economy have cooled off.” Following four boom years during which Alberta’s economy grew twice as fast as the rest of the country, 2007 felt like a bit of a letdown, with the province posting real growth of 3.1%, just above the 2.7% Canadian average. Little did analysts know that the less stellar results of 2007 would look quite acceptable compared to the 0.2% economic decline the province experienced in 2008. This first annual contraction since 1986 came as a bit of a shock for a whole generation of Albertans. While many provinces faced more severe losses than Alberta in 2008, a few did better and, as a result, Canada’s economy edged up 0.5% as a whole.
Alberta faces difficulties not seen in many years as a result of the double and simultaneous hits it took from plunging energy prices and a global economic slowdown. Within six months, the unemployment rate nearly doubled, international exports were almost cut in half, and the provincial government announced it would be facing its first deficit in a decade. How can those dramatic headline-grabbing items be related to the modest 0.2% annual decline mentioned earlier, a mere pause in statistical terms? Answer: the impact of the left-right blows of low energy prices and the world downturn were felt in the second half of 2008 only. In fact, the January to June period in Alberta featured growth which, while not spectacular, was still somewhat in line with the province’s 2007 performance. Then in July oil and gas prices began a sustained decline just as US economic exhaustion started to be felt around the world.