Still stinging from the last global economic downturn, many Albertans are watching the sovereign debt crisis in Europe and monitoring the failing health of the American economy with trepidation.
“We’re a little concerned for sure,” said Maureen McMurtrie, president of the Red Deer Chamber of Commerce and a senior commercial relationship manager with Servus Credit Union. “We all know that our economy is directly tied to the U.S. economy.”
Still, she is not anticipating a double-dip recession here, and even predicts that the local economy will continue to strengthen.
“I think Red Deer has turned the corner, and certainly we’re seeing it in member businesses at my work — statements are looking a lot better than they did a year or two ago.”
Oil and food prices are much higher than they were during the downturn, she continued, which bodes well for the energy and agricultural sectors.
“Going forward, I think we’re going to see a return to prosperity.”
Mike Drotar, vice-president treasury with Servus, is optimistic the Europeans will resolve their debt issues. What’s required, he said, is the political will to make some tough decisions.
“Once that occurs, and I believe that it will — I just don’t know exactly when — the markets will settle down and start to get on track again.”
Although global markets took a beating last week, the mood among traders has brightened with news that Germany and other rich EU countries are developing a new strategy to help Greece avoid defaulting on its debt.
Drotar is encouraged by this, and the fact the G20 finance ministers appear willing to collaborate.
He acknowledged that energy company executives might be squirming after oil prices fell 10 per cent to the $80 mark last week. But there should be enough momentum in the provincial economy that any setback will be temporary.
William van’t Veld, an economist with ATB Financial, said the drop in oil prices shouldn’t impact petroleum projects already underway. However, if the numbers drift much lower, new investment could dry up.
“Once a project gets delayed, as we saw in 2008, it has a huge ripple effect on engineering firms and the manufacturing sector,” said van’t Veld. “This, in turn, hits other industries along the supply chain. The higher resulting unemployment then begins to hit retail sales and tax receipts.
“Needless to say, it’s a nasty cycle.”
Patrick O’Meara, chair of the business and commerce at Red Deer College’s Donald School of Business, has a similar take.
“If oil prices and natural gas prices stay low, then I think we could be potentially headed for a bit of a recession,” he said.
Economic malaise in Europe and the U.S. could contribute to this, said O’Meara, as could the policy of central banks to keep interest rates low — which deters inflation and makes investment in commodities as a hedge less attractive.
Longer term, however, the outlook for a commodity-based economy like Alberta’s should be favourable, said O’Meara. He expects China and other emerging countries to provide a growing market for Alberta’s energy products.
“In the long run, we’ll be OK. But I think the next year or so, if prices stay low, we’re probably going to see a little bit of a slowdown here.”
What would it take for energy prices to sink to a level that would shake the industry and the Alberta economy?
“A severe recession and continued uncertainty of how to get out of it would do the trick,” said van’t Veld. “The sovereign debt crisis in Europe certainly has that potential.
“In a worst-case scenario, after a Greece default another larger country, say Spain or Italy, also defaults and some major financial institutions in Europe begin to fail. As a result, it impacts the real economy in Europe because credit dries up, impacting commerce and trade around the world.”
Drotar is reluctant to even contemplate this scenario.
“It’d be massive pain,” he said. “It’d be as bad as 2008 all over again, if not worse.”
But it’s unlikely to happen, he added.
Van’t Veld agreed.
“What’s happening in Europe is scary, yes, but let’s not head to the mountains with our Campbell’s soup and shotgun just yet.”
hrichards@www.reddeeradvocate.com