ATB downgrades outlook for Alberta
Province’s unemployment rate expected to hit six per cent this year
The prolonged slump in oil prices has caused ATB Financial to take a dimmer view of the provincial economy.
Its second- quarter outlook, released Tuesday, forecasts real GDP growth of 0.8 per cent for 2015, down from two per cent in its January forecast. The Alberta economy grew by an estimated 3.8 per cent in 2014.
Todd Hirsch, chief economist with ATB Financial, said oil prices haven’t stabilized as the provincial bank expected, leading it to lower short- term expectations.
“These energy prices are going to bounce up and down between that $ 45-$ 55 ( range) for awhile,” he said. Its outlook calls for an average annual price of $ 50 to $ 60 U. S. a barrel for West Texas Intermediate.
Last week’s provincial budget — which forecast only 0.4 per cent real GDP growth — said WTI will average $ 54.84 in 2015- 16, rising to $ 62.80 in 2016- 17. ATB’s firstquarter forecast pegged WTI at $ 55-$ 70 US this year.
Premier Jim Prentice said Tuesday that he expects the effects of low oil prices to play out across the province for several months.
“Cap- ex decisions that we’re going to see over the next six months will reflect decisions made by companies in response to lower prices and really significant reductions, so we haven’t seen the brunt of that yet, I don’t think,” Prentice told the Herald’s editorial board.
“The reductions in employment that we’ve seen in the energy sector over the last three months are quite significant.”
ATB projects the province’s unemployment rate will hit six per cent this year, up from 4.7 per cent in 2014 and higher than its 5.4 per cent first- quarter prediction. Employment growth is expected to be flat while net in- migration will fall to 40,000 in 2015, from 75,000 last year, it said.
“We have darkened our forecast for the province, there is no question,” said Hirsch. “However, this is a very normal part of Alberta’s cyclical economy. This isn’t going to be one of the worst downturns we’ve ever seen, and I think it’s important for people to remember that.”
The bank report predicts Alberta will see a gradual economic recovery coming out of 2015, with 1.7 per cent growth in 2016 and 3.1 per cent in 2017, in line with provincial budget projections.
The ATB report was released the same day Statistics Canada said the Canadian economy contracted in January as real GDP declined by 0.1 per cent — led by shrinking wholesale and retail sales — after increasing 0.3 per cent in December.
Ron Kneebone, area director for economic and social policy with the University of Calgary’s School of Public Policy, said fears that tax and fee hikes contained in last week’s budget could lead to a recession are unfounded.
“In fact, they may even be helping the economy by removing some of the uncertainty,” he said of the budget measures. “The fall in oil prices has clearly hit the government’s finances and that opens the question: What’s the government going to do about fixing that issue, ( about) relieving the uncertainty.
“It really doesn’t matter how you go about fixing it. Whether you cut spending a lot or raise taxes a lot, I don’t think it really matters all that much. What matters is that the private sector has certainty about what it is that the solution is going to be.”
Hirsch said agriculture, forestry and tourism will likely benefit from lower fuel prices.
“The lower Canadian dollar and commodity prices, particularly higher cattle prices, also help provide some cushion to minimize the impact being felt during these next few months,” he said.
What matters is that the private sector has certainty about what it is that the solution is going to be.