Muted energy spending, credit cut sour outlook for Alberta

CALGARY A credit downgrade and mixed outlook for oil and gas spending next year raise concerns about Alberta’s economy heading into 2020, but economists are still predicting a modest recovery for the oil-producing province.

“The environment around investment is still really not that great,” Conference Board of Canada chief economist Pedro Antunes said Wednesday. The Conference Board’s forecast of 2.4-per-cent real GDP growth next year followed by 3.1-per-cent growth in 2021 was “prudent,” Antunes said.

Antunes was in Edmonton Wednesday to meet with other private sector economists and Alberta Treasury Board and Finance Minister Travis Toews about the provincial outlook a day after the province’s credit rating was downgraded amid mixed signals from oil companies about spending next year.

Moody’s Investors Service Inc. cut Alberta’s credit rating a full notch to Aa2 with a stable trend on Tuesday because of “structural weakness in the provincial economy that remains concentrated and dependent on non-renewable resources” and a lack of export pipeline capacity.

Toews said in a release he was “disappointed” by the downgrade but blamed the move on the previous NDP government’s spending and the continued lack of new pipelines.

This fall, Toews tabled an austerity budget that included a three-per-cent reduction in operating spending, which he said would enable the province to table a balanced budget by 2023.

“I stand behind our government’s plan and I am confident it is the right path forward for Alberta and for all Albertans,” Toews said following the credit downgrade.

Since Alberta’s government will be under pressure not to reduce front-line services in the midst of austerity and there will be political incentives to spend money, Moody’s said “the government’s fiscal projections are subject to material execution risk.”

Antunes said private-sector energy investment in Alberta has fallen each year from a peak of $60 billion before oil prices crashed in 2014 to $25.5 billion in 2019. In the next five years, he expects those levels to inch back up to $30 billion on average.