Story by the Associated Press
Alberta’s oil-heavy economy will likely dip into recession as oil prices plunge, according to a report by a Canadian economic think-tank.
The Conference Board of Canada said the western Canadian province’s latest employment and new housing start numbers are holding steady, but that Alberta will slip into recession if oil prices stay low.
“It’s going to be very hard for Alberta to avoid a recession this year,” said Glen Hodgson, the think tank’s chef economist.
The price of a barrel of oil has plummeted from $105 as recently as June to under $50 on Tuesday — its lowest price in six years. Alberta has the world’s third-largest oil reserves after Saudi Arabia and Venezuela. Its oil sands are the single largest source of U.S. oil imports.
“Going forward, the province is certain to suffer, especially on the employment front, from the drop in oil prices — and it is likely to slip into recession,” Daniel Fields, an economist at the not-for-profit research organization, said in the report, released late Monday.
Last year, Alberta’s economy grew by 3.9 percent, according the province’s website. Alberta has led all of Canada’s provinces in GDP growth over the past two decades, due in large part to its oil industry revenues.
But Hodgson said that could easily change. Even if oil prices rebound to $65 per barrel, he forecasts that investment, profits and consumer spending will be down.
Already, Calgary-based Canadian Natural Resources Limited, an oil and gas exploration, development and production company, announced this week that it will spend $2.4 billion less than expected this year. Other Canadian energy companies such as Cenovus and Husky Energy have also recently announced reduced capital budgets.
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, said that if crude prices persist, they will significantly discourage investment in the oil sector, which he said accounts for about 3 percent of Canada’s gross domestic product.
His remarks follow Bank of Canada governor Stephen Poloz’s statement last month that low oil prices could knock 0.3 percentage points off the pace of economic growth.