ATB Financial is warning that weak oil and natural gas prices will result in economic pain for Alberta this year.
But the province is still in relatively good shape and a recession is unlikely.
An economic outlook issued by the Crown-owned financial institution on Wednesday projected that Alberta’s GDP growth will tumble to 2.0 per cent this year, about half the 2014 rate. Unemployment is expected to climb to 5.4 per cent, as compared with 4.7 per cent last year, and a slower in-migration of people to the province will hamper residential construction and retail activity.
“The economic picture painted by our research certainly shows a slowdown,” said Todd Hirsch, ATB Financial’s chief economist. “But it’s not doom and gloom here. We’re still on track with Canadian averages; we’re just not full steam ahead as we have been in recent years.”
The economic outlook offers three possible scenarios for Alberta in 2015.
The most probable would see the global economy stabilize and oil production decline, pushing the price of West Texas intermediate crude to between US$55 and $70 a barrel. This would have only a small impact on oilsands projects and curb conventional drilling by 10 per cent — resulting in modest job losses and provincial GDP growth of 2.0 per cent.
A less likely scenario would be one in which global economic growth slows further and surplus oil supplies keep crude prices in the US$40 to $55 range. Several oilsands projects would be deferred or cancelled and conventional drilling would drop by 20 per cent as a consequence, with more significant job losses and GDP growth of only 0.5 to 1.5 per cent.
The third scenario, which ATB Financial said is the least likely to become reality, would be one in which international growth accelerates and falling oil production pushes WTI prices to between US$70 to $90. This would have little impact on the oilsands, conventional drilling would stabilize by the second half of the year, and growth in Alberta would remain above 2.5 per cent.
“Anything could happen, but we feel the most probable scenario is one that returns oil prices to a reasonable range by the end of 2015,” said Hirsch.
ATB Financial’s economic outlook noted that non-energy sectors in Alberta remain strong.
“The agriculture, forestry and tourism industries all benefit from low oil prices and a soft Canadian dollar,” said Hirsch. “They’ll do well in 2015, with tractors, trucks and tourists fuelling up and spending their money in Canada.”
Alberta’s residential construction sector did not appear to have been impacted by low energy prices as of November, said the economic outlook, and non-residential construction was still strong. Meanwhile, retailers in the province were still enjoying record sales in September and October.
The report noted that business confidence in the province did fall sharply in December, which was expected given the steep decline in oil prices.