An expected rocky year for Alberta’s economy — which one prominent analyst says will likely lead to recession in the province — is not cause for hasty decisions, Calgary business leaders heard Tuesday.
ATB Financial chief economist Todd Hirsch told a Calgary Chamber of Commerce audience that plunging oil prices will require business owners and consumers to be prudent but not panic in the coming months.
“In a lot of senses this is a normal pattern for Calgary and we shouldn’t worry about this too much,” Hirsch said.
“That’s not to mean there’s not going to be some unemployment and some loss of jobs and some of that rockiness that comes with this kind of cycle, but our biggest concern at this point isn’t oil prices, it’s fear gripping people and causing things to be much worse than they would normally need to be.”
ATB last week said economic growth in Alberta will be cut in half in 2015 with real GDP falling to two per cent, from 3.8 per cent in 2014. Hirsch said ATB expects crude prices — which fell below $46 US a barrel Tuesday in New York — will recover in the second half of 2015.
The bank’s outlook was more optimistic than a Conference Board of Canada forecast, which warned the province will slip into recession if oil prices remain low. The board’s chief economist, Glen Hodgson, said even if oil prices rebound to $65 US a barrel investment, profits and consumer spending will be down.
“It’s going to be very hard for Alberta to avoid a recession this year,” said Hodgson.
Premier Jim Prentice disputed that assessment.
“I didn’t find their analysis to be particularly cogent, to be frank, and the opinion that they put forward is an outlier among all of the other opinions that have been put forward by every one of Canada’s chartered banks and by other respected economic forecasters,” the premier said in Edmonton.
Calgary business owners attending Tuesday’s Chamber forecast tended to support the views of Hirsch and Prentice.
“I’ve lived in Alberta since the 1970s. We’ve seen it all before,” said Brad Celmainis, president of Brad Celmainis Consulting, which provides financial support services to businesses.
“Four or five months ago we weren’t even having this talk and all of a sudden, bang, everyone’s freaked out. I don’t see it continuing in the long run. We’ll adjust. We always do. That’s what makes Alberta, Alberta.”
Gaurav Gupta, owner of Leela Eco Spa and Studio, said he’s keeping a close watch on how oil prices and the economy affect his business.
“Right now it’s more of a wait and watch pattern,” he said.
“(The) 2009 (recession) was not so far back. We came out of it pretty strong. And I’m optimistic that we will come through this dip sooner than later and while we are in the dip we are able to survive it out.”
Chamber president Adam Legge said businesses are eager for any insight into how long oil prices will remain depressed and how they should respond.
“The good thing is that everybody in Calgary and in Alberta is in the same boat. Nobody knows how long this is going to last and how deep it’s going to go,” he said.
“We’re all working with imperfect information. But the reality is we have to be able to be successfully operating our businesses in imperfect times. It’s a matter of knowing your market, knowing your customers and making the best business decisions you can in light of that.”
Pierre Cleroux, vice-president, research and chief economist with the Business Development Bank of Canada, said many business opportunities exist outside Alberta right now.
“Oil of course is the No. 1 export product from Alberta but we often forget that Alberta is also a diversified economy. There’s other sectors that are doing well,” he said, citing a 50 per cent increase in meat product exports last year along with growth in the aerospace, farming and chemicals sectors.
“The economy in the rest of Canada is improving and the economy in the rest of the world is improving. So the timing for businesses to explore other markets is just great.”
Like the premier, Cleroux said he doesn’t believe a recession is ahead for Alberta.
“There’s going to be less growth this year and all this will depend on how long the price is going to stay depressed. That’s really the key factor for the oil sector,” he said. “The key element is how much companies are ready to invest and how much they are able to invest in this new environment.
“And the price will go up again. There’s no consensus when and how much. But there’s no doubt that the world demand is still strong and it’s still increasing, so the price will come back.”
The Bank of Canada said Tuesday that low oil and commodity prices are putting the Canadian economy’s post-recession recovery at risk. The central bank’s deputy governor Timothy Lane told an American audience in Wisconsin that if cheap crude prices persist, they will significantly discourage investment in the oil sector, which he said accounts for about three per cent of Canada’s gross domestic product.
Lane said lower oil prices produce benefits such as putting more disposable cash in consumers’ pockets and helping to cut costs for other sectors, like manufacturing.
But, Lane predicted the gains will be more than outweighed by the losses because lower incomes in the oilpatch and along its supply chain will hurt the rest of Canada’s economy.
“Despite the mitigating factors I enumerated, lower oil prices are likely, on the whole, to be bad for Canada,” Lane said.
Meanwhile, TD Bank on Tuesday predicted sliding oil prices could turn the federal government’s promised 2015-16 surplus into a deficit. It projected Ottawa to run a $2.3-billion shortfall next fiscal year rather than the $1.6-billion surplus predicted in November.
With files from Canadian Press