Alberta as well as Newfoundland and Labrador appear headed for a recession this year, as lower oil prices dramatically change the fortunes of different regions of Canada, a CIBC report suggests
“Alberta looks headed for a mild and short-lived recession,” CIBC economist Avery Shenfeld said in a report released Tuesday. The report predicts at least two quarters of negative growth for the oil-driven economy and a shrinking of Alberta’s gross domestic product by 0.3 per cent in 2015.
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Newfoundland and Labrador, which grew seven per cent in 2014, could decline by 1.3 per cent this year and continue in recession in 2016, CIBC predicted.
CIBC forecasts unemployment of 6.8 per cent in Alberta, and 12.8 per cent in Newfoundland and Labrador by year end as the oil and gas sector cuts capital spending.
The bank adds its voice to a chorus of economists predicting a downturn for Alberta this year. The Conference Board of Canada also predicted a recession for the province, angering Alberta Premier Jim Prentice.
While many economists have slashed their growth forecasts, some are shying away from saying there will be a recession.
Recession or not?
Todd Hirsch, chief economist with ATB Financial, and Pierre Cleroux with the Business Development Bank of Canada have said they are expecting a soft year, but not a recession.
Shenfeld reasons there will be a small reduction in oil output, but cuts in oilpatch spending will combine with restraint by the provincial government and the loss of investment growth to shrink the province’s economy.
“A dramatic drop in oil prices, juxtaposed against a still-healthy U.S. economy, has turned the tables on relative provincial growth, with Alberta at risk of a recession, but central Canada’s prospects brightening,” he wrote in the report.
CIBC predicts growth of 2.8 per cent in Ontario this year, up from 2.1 per cent in 2014.
The low dollar, stronger demand from the U.S. and low energy prices are combining to boost manufacturing and the export sector in Ontario.
But Shenfeld points to reasons for the slow start to the rebound.
“After a spate of plan closures during the strong Canadian dollar era, capacity use is now fairly tight. Further growth will therefore require capital expenditures to add capacity,” he said.
The loonie has dropped from par with the U.S. dollar two years ago to about 80 cents today.
Ontario’s unemployment could drop to 6.6 per cent from 7.2 per cent now, CIBC said.