Alberta economy to contract seven per cent this year

Conference Board of Canada paints grim picture of devastating effect of COVID-19

EDMONTON — Alberta’s economy will contract by a “historic” seven per cent this year, according to a new forecast that says the province is facing its worst recession on record.

The report by the Conference Board of Canada — which just three months ago was projecting 2020 to be the first year of a long-awaited economic recovery in Alberta — paints a grim picture of the devastating effect of COVID-19 on the province. While all of Canada is reeling from the economic lockdown implemented to prevent the spread of the virus (national GDP growth is forecast to decline by 4.3 per cent this year), the think-tank says Alberta’s economy will be the hardest hit in the country due to the double whammy of the pandemic and the global oil price crash.

“Alberta’s never seen a decline like this. The closest it came before was during the (2009) financial crisis when GDP growth fell by 5.5 per cent,” said Alicia Macdonald, associate director of economic forecasting for the Conference

Board of Canada.

The effects are expected to hit hardest in the second quarter, when — due to public health regulations aimed at keeping people at home and safe from the virus — the province’s unemployment rate will average 17.4 per cent. However, Statistics Canada only counts those who are actively looking for work when calculating unemployment, meaning the real number of jobless Albertans is likely significantly higher.

Other indicators, however, are better at illustrating the depth of economic pain in the province. According to the Conference Board’s Index of Consumer Confidence, 59.2 per cent of Albertans surveyed in May feel pessimistic about their future job prospects.

In addition, more than 30 per cent of Albertans expect to be financially worse off six months from now, and real household consumption is expected to decline by a record 10.3 per cent this year — in part because of regulations that have limited the amounts of goods and services consumers are able to buy.

Macdonald said with public health restrictions now lifting, economic activity should pick up in the third and fourth quarters and gain momentum into 2021. Next year, Alberta could see economic growth of up to 6.5 per cent, she said.

“2021 is looking to be a much better year, but a lot of that is because we’re coming off such a bad year right now,” she said, adding that oil and gas investment in the third quarter of 2020 will likely hit a level lower than anything seen since the late 1990s. “We do see quarter four starting to pick up, but this is from exceptionally low levels. The cash flow hit from the decline in oil prices is really going to weigh on investment in the next few quarters, that’s for sure.”

Charles St-Arnaud, chief economist for Alberta Central — the central banking facility for the province’s credit unions — is also predicting a recovery in 2021, helped in part by an expected partial normalization in oil prices. However, he said that with the size of the income shock experienced by many households this year and the unemployment rate expected to remain elevated for some time, there will be a lasting negative effect on consumer spending and the housing market.