ALBERTA ECONOMY LOOKING UP
With rising oil prices and employment, worst is likely over: Varcoe
Stronger oil prices, a better-than-expected jobs report and an improving outlook from entrepreneurs delivered some welcome relief this week to Alberta’s embattled economy.
The pain isn’t done, but the worst appears to be over. Progress can be seen as more of the economy reactivates and more Albertans can head back to work.
“It is a long road to recovery,” cautioned Mike Holden, chief economist for the Business Council of Alberta.
“At least we are on the road to recovery, and that alone is reason to be positive.”
Alberta has been reeling since March when collapsing oil markets and the COVID-19 pandemic idled a huge swath of the economy and thousands of workers.
Oil prices plummeted into unprecedented territory and many businesses closed, prompting Premier Jason Kenney to warn the unemployment rate could reach levels not seen since the Great Depression.
As more information trickles in, it’s apparent just how deep the economic hole will be — and make no mistake, it’s a huge crater.
However, benchmark oil prices, which submerged into negative territory less than seven weeks ago, are rallying.
West Texas Intermediate crude closed Friday at US$39.55 a barrel and ended the week up more than 11 per cent, as global energy demand rebounds and OPEC+ is expected to extend significant output cuts at a meeting on Saturday.
In turn, the S&P/TSX Capped Energy Index jumped almost eight per cent on Friday.
Some Canadian petroleum producers are already beginning to turn the taps back on after oil output was idled just a few months ago.
Baytex Energy Corp. CEO Ed Lafehr told a conference earlier this week the company, which shut-in about 25,000 barrels per day (bpd) in April and May, has now brought back 5,000 bpd of light oil. It will also look at reactivating some heavy oil production this summer.
Many companies remain reluctant to crank open the taps given the volatility of energy markets and damage done to the sector. An estimated one million bpd of production in Canada has been shut-in this spring.
“At the current prices, it doesn’t change our strategy one bit, but it does strengthen our balance sheet because we are paying down debt, which is great,” Nuvista Energy CEO Jonathan Wright said Friday.
“At least we can have companies not feeling like they’re just under siege, which is the way it feels when you are in the $20s and $30s.”
Friday also delivered a new labour force survey from Statistics Canada that exceeded most expectations.
Across the country, employment levels increased by almost 290,000 in May, a significant turnaround from the three million jobs that disappeared in March and April.
In Alberta, the official unemployment rate soared to an all-time high of 15.5 per cent last month, up from 13.4 per cent in April, as more people began looking for work.
Yet, the province saw total employment increase in May by 28,000 positions, mainly part-time jobs, as Alberta began to reopen parts of the economy, including restaurants, bars and retail outlets.
University of Calgary economist Trevor Tombe said Alberta’s effective unemployment rate, which includes people who lost hours of work but were still deemed to be employed, dropped to 24.9 per cent last month, a seven-percentage point improvement from April.
The critical issue moving forward is how many jobs that disappeared earlier this spring will come back as more industries reopen?
Job losses across the province still total more than 300,000 since February, more than the combined populations of Lethbridge, Red Deer and Medicine Hat.
“It’s too soon to say how robust the recovery is going to be, but it looks like the worst is behind us,” said Tombe.
In Edmonton, Kenney said he’s pleased the official unemployment rate hasn’t soared to the 25 per cent range the province initially expected in April.
“We will take whatever good news we can get,” he said.
“I believe that, actually, we have seen the bottom of the trough and that we are going to see employment continue to come back.”
There are still many reasons to be cautious, including the uncertainty of whether another wave of coronavirus will strike this year and how the future stages of the economic reopening will unfold.
But the first stage has gone as well as could have been expected. The number of new COVID-19 cases reported Friday, at just seven, was the lowest in Alberta since mid-march.
“We have staved off those fears of a depression or an even worse situation,” said Rob Roach, director of research for ATB Economics.
“We know it is going to take, realistically, several years just to come back. But if things hold and we don’t see a real second wave that sets everything back, we are on the track to recover.”
A new survey by the Alberta Chambers of Commerce underscores that sentiment. It reported 80 per cent of business operators in the province expect a slow economic recovery in Alberta.
It also found entrepreneurs are growing more confident their businesses will survive the impact of the pandemic. More than nine out of 10 said they are likely to continue operating after the crisis passes.
“People are starting to feel as reassured as they can be,” said chamber CEO Ken Kobly. “Most small businesses believe if they made it this far, they can make it the rest of the distance.”
Given the size of the economic shock that has hit Alberta this year, that’s progress.
I believe that ... we have seen the bottom of the trough and that we are going to see employment continue to come back.