A precipitous drop in the price of crude oil has hurt the outlook for Alberta’s economy in 2015, but even with the expected slowdown, an outright recession is highly unlikely, says a new report released Wednesday by ATB Financial.
In its Alberta Economic Outlook, ATB predicts real GDP growth to fall by nearly half from 2014 — dropping from 3.9 per cent to two per cent. Growth in 2016 and 2017 are forecast at two per cent and 2.1 per cent, respectively.
“I think it’s going to feel like one of those blips, rather than a collapse of any sort,” said Todd Hirsch, chief economist with ATB Financial. “I do think it’s all quite temporary and probably a year from now we’ll look back and we’ll say, ‘It seemed all kind of much ado about nothing.’
“But it is going to be pretty soft here for the first half of the year. Unemployment is going to rise. That’s where people tend to feel it the most,” Hirsch said.
The report said the sudden and rapid drop in oil prices is having a significant impact on almost every oil-producing company. Planned capital spending has been cut for 2015 and some layoffs have already been announced.
It said the energy sector has just started to absorb the impact of oil prices that have been cut in half.
ATB says the most likely scenario for oil prices in 2015 is for West Texas Intermediate crude to average $55 to $70 per barrel. It says average prices of $40-$55 are “somewhat likely,” while the $70-$90 range is the least likely scenario.
On Tuesday, oil futures closed at $47.93 US per barrel.
“Probably for the first half — at least the first quarter — of 2015 it’s going to wallow (below $50), but I think we will see a snap back in the second half of 2015, giving it an average for the entire year of between $55 and $70,” said Hirsch.
The ATB report forecast the unemployment rate in Alberta to move from 4.7 per cent in 2014 to 5.4 per cent this year, five per cent in 2016 and 4.7 per cent in 2017.
It also forecast employment growth dropping from 3.1 per cent in 2014 to 1.3 per cent this year, 1.9 per cent in 2016 and 2.1 per cent in 2017.
Annual inflation is expected to rise from 1.3 per cent in 2014 to 1.4 per cent in 2015, 2.0 per cent in 2016 and 2.1 per cent in 2017.
In a commentary released Wednesday by the Conference Board of Canada, Kip Beckman, principal research associate, economic services, said recent comments by Saudi Arabia’s oil minister that there will be no cuts in his country’s oil production even if oil falls to $20 per barrel “certainly supports the view that world oil prices, which are trading below $50 per barrel, will remain at rock-bottom levels for at least a year.”
“Yet, despite the uncertainty surrounding the future direction of world oil prices, we are confident that prices will rise over the course of this year. There won’t be much movement in the first half of 2015, and $100 per barrel oil isn’t coming back any time soon. But we expect world oil prices to rise above $60 by the end of this year. A mix of demand, supply, and Saudi intentions will be behind the turnaround,” he said.
“Low oil prices will also stimulate global economic growth that will fuel rising demand for oil and higher prices. While oil-producing countries such as Canada are hurt by tumbling oil prices, most of the world’s largest economies— including the United States, India, and China — are net importers of oil, and their GDP growth will receive a boost from lower energy costs.”
Beckman said that in the present economic environment, where global oil supplies exceed demand by around one million barrels per day and oil prices continue to slide on a daily basis, it may be difficult to imagine a turnaround any time soon.
“Yet, history shows that, more often than not, tumbling oil prices are quickly followed by a sharp upturn,” he said.