New projections for Alberta look dim, but are a normal part of the cycle
ATB Financial, the largest Alberta-based financial institution, released its quarterly projections for the province, with a somewhat pessimistic outlook. The Alberta Economic Outlook predicts a continued slide in consumer and business optimism. This combined with low oil prices is expected to have negative impacts on the Alberta economy as the province endures the commodity drop.
“We have darkened our forecast for the province, there is no question,” said Todd Hirsch, chief economist with ATB Financial. “However, this is a very normal part of Alberta’s cyclical economy. This is not going to be one of the worst downturns we’ve ever seen, and I think it’s important for people to remember that.”
ATB forecasts three different scenarios for the Alberta economy, ranging in probability from least likely to most likely. The “least likely scenario” is that global economic growth will accelerate and OPEC will lower production. In this scenario, West Texas Intermediate (WTI) reaches $60 to $75 per barrel, demand increases, prices rise as the glut eases, job layoffs decline and ultimately result in provincial GDP growth.
In the institution’s “somewhat likely” prediction, global economic growth slows further, OPEC continues to produce at current levels and WTI stays around $40 to $50 per barrel. Storage reaches capacity driving prices down even further, oilsands projects are deferred or cancelled, conventional drilling is scaled back, unemployment escalates to 7.5% to 8.0% by the end of 2015 and provincial real GDP growth retreats by 0% to -1.0%.
The “most likely scenario” projects that global economic growth will stabilize, some OPEC members will curtail the number of barrels being produced as they are unable to maintain higher levels of production and prices start to rebound by summer or early fall of this year with WTI settling between $50 and $60 per barrel. In this scenario some high-cost producers are forced to come off the market, restocking continues but capacity remains available, unemployment in Alberta rises to 6.0% to 6.5% by the end of the year and 2015 real provincial GDP growth slows to 0.5% to 1.0%.
ATB downgraded its expectations for GDP growth to 0.8% from 2.0%, but Hirsch still sees upside in other parts of the economy. “Lowering [GDP] from 2.0% growth to 0.8% is a pretty big step, however we still see that there is some underlying strength in the provincial economy outside the energy sector, so we are still not calling for an outright contraction.”
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