stock-red-arrow-down-drop

The collapse in oil prices will likely send Alberta’s economy into a tailspin, says a new outlook report by the Conference Board of Canada.

This year, it finds, the province’s real GDP forecast will contract by 1.5%.

“The party appears to be over in Alberta, at least over the medium term, as low oil prices send chills through the economy,” says Marie-Christine Bernard, associate director of Provincial Forecast.

Read: Alberta at risk of recession due to falling oil prices: CIBC

“Several oil-industry firms have already announced sharp reductions to their capital plans and to employment, and in the next couple of years, a return to 4%-plus growth [for the province] is not in the cards.”

Already, planned reductions to oil patch investments are having an impact, says the report. The oil drilling rig count is down by 40%, as of the first week of February.

Read: What will happen to oil prices?

Further, job losses resulting from lower oil sector investment will weaken the housing market, the overall consumer sector and the flow of new arrivals to Alberta.

What’s more, government revenues (from labour and corporate income taxes and resource royalties) will be severely at risk this year. Over the past ten years, the provincial government has derived, on average, 29% of its revenues from the resource sector—notably oil and gas royalties.

So the government has announced a 9% reduction to programs spending for the upcoming fiscal year. Infrastructure programs announced in the 2014 budget are also at risk.

Read: Canadian banks exposed to oil sector’s decline

One bright spot for Alberta is strong demand for heavy oil in U.S. Gulf Coast refineries. Thanks to past investment, the energy sector has available capacity and it is able to increase non-conventional production.

Still, oil prices are expected to gradually rise as the global supply glut eases and worldwide demand improves. Prospects in the oil industry, both for capital expenditures and jobs, should gradually improve later this year and in 2016. Even so, the Alberta economy is expected to grow by a moderate 1.2% next year.

Originally published on Advisor.ca

Add a comment

You must be logged in to comment.

Register on Advisor.ca