Oil price pain still coming, Prentice says
The economy may not be as “atrocious” as the Bank of Canada has said, but Alberta Premier Jim Prentice is warning the worst is yet to come.
“The cap- ex decisions we are going to see over the next six months are going to reflect new decisions made by companies in response to lower prices,” Prentice said Tuesday in a meeting with the Calgary Herald editorial board.“We haven’t seen the brunt of that yet ... I don’t think we’re through it by any means.”
Prentice offered the dire outlook for the Alberta economy shortly after Statistics Canada reported the oil and gas industry actually helped to hold the decline in the national economy in January to about half of what was forecast by economists.
Statistics Canada said GDP fell by 0.1 per cent as rising oil production offset the declines by wholesalers and retailers. It attributed the increase to a completion of maintenance at some oilsands facilities.
The StatsCan numbers suggest the impact of depressed crude prices on the national economy may not be as “atrocious” as Bank of Canada governor Stephen Poloz warned Monday in his assessment of Canada’s firstquarter economic performance in an interview with The Financial Times.
ATB Financial released a new economic outlook Tuesday that predicted Alberta will see real GDP growth fall to a paltry 0.8 per cent in “a challenging 2015” warning the volatility in oil prices indicates the bottom of the market “has not yet been tested.”
West Texas Intermediate crude closed at $ 47.60 US a barrel on Tuesday.
Alberta has budgeted that WTI will average just under $ 55 a barrel this year but industry forecasters have warned crude could dip as low as $ 30 a barrel given waning demand in an oversupplied global market.
Price spikes aside, ATB predicts Alberta will see a gradual recovery coming out of 2015 with 1.7 per cent GDP growth in 2016.
It’s a glimmer of optimism for people who have lost jobs as layoff announcements become an almost daily occurrence in the oilpatch.
Prentice — who has picked up the nickname “Grim Jim” for his repeated warnings of what he’s called the worst economic downturn in Alberta in a generation — noted the province lost 14,000 jobs in February.
Statistics for March aren’t available yet but he conceded “it’s not been a good month.”
ATB agreed with Prentice’s pessimism on jobs.
“This is an unpleasant but entirely normal pattern for a labour market that has faced energy price shocks numerous times in the past,” its report said. “The job market is almost certain to show further stress in the second quarter.”
The Canadian Association of Petroleum Producers said in January its members expected to reduce capital spending by onethird this year to $ 46 billion and the Conference Board of Canada said last week oilsands investment may never return to the recent boom times.
Alberta’s unemployment rate rose almost a full percentage point in February to 5.3 per cent but the bulk of the reductions in capital spending from oil and gas producers were only slated to take hold after the winter drilling season was over.
Finance Minister Robin Campbell’s budget announced last Thursday addressed a $ 7 billion reduction in government revenues — linked to the more than 50 per cent decline in the price of oil since last June — with a mix of cuts to services, deficit spending and tax increases.
Prentice said he’s bracing for three years of depressed oil prices and opted to run a $ 5- billion budget deficit this year in order not “to trip the province into a recession.”
The report from ATB Financial cited agriculture, forestry and tourism as sectors of the Alberta economy that will benefit from lower fuel prices and noted commodity exporters and tourism operators will also gain from a lower Canadian dollar.
Prentice pointed out the prices for oil and gas are so depressed that provincial royalty rates are at the lowest level on its scale and the government has likely seen the low point in the payments it receives from non- renewable resources this year.
Alberta estimates revenues from non- renewable resources will be $ 2.87 billion this fiscal year but will climb back to $ 8.74 billion in 2019- 20.
Despite the price slide, oilsands production is forecast to grow by one million barrels a day in the next five years.
It may still be years off but it’s a rare bit of optimism for Alberta’s beleaguered economy.