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Alberta will sink into recession this year, as provincial fortunes turn amid oil’s collapse, CIBC predicts
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9 X# ~. e7 z! d- G; e9 Q, OGordon Isfeld | February 17, 2015 | Last Updated: Feb 17 6:00 PM ET! P; C j& j! }$ Y8 G7 [* W1 u
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6 D A9 Q2 D- P" xLast year Alberta lead Canada's growth, but the plunge in oil prices has turned the tables on the nation's energy giants.! P8 J/ t/ p4 m4 [" s5 x
BloombergLast year Alberta lead Canada's growth, but the plunge in oil prices has turned the tables on the nation's energy giants.
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' K/ Q, o5 t* t+ w( k9 H( h5 TOTTAWA — Consistently low oil prices could dramatically alter the economic landscape of Canada in the coming year and beyond, with Alberta slipping into a “mild” recession as a weak dollar helps lift the manufacturing hubs such as Ontario., f, t1 i( ^2 O) d0 M b$ y
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That pattern is already being reflected in a slowdown in the oil patch-fueled housing market in Calgary and Edmonton, in addition to an anticipated knock-on increase in unemployment rates in the province.3 |) v9 @( L0 B. E$ h
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In a report released Tuesday, titled The Tables Have Turned, economists at CIBC World Markets said recent data show “just how sharply the growth leadership is likely to swing.”
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Most startling, perhaps, is the likelihood Alberta will go from the leading economic power house in 2014 to recessionary levels this year.$ \5 F- N+ B- {- o
( w, P. K1 E+ f I“Alberta looks headed for a mild and temporary recession,” said economists Avery Shenfeld and Nick Exarhos, pointing to a 0.3% decline in 2015, compared with 4.1% growth in 2014.( a) Y g+ v5 A# D% k( i
9 k& L, x' k9 H( jAs well, they see growth in Saskatchewan — the country’s other major resources-heavy province — suffering in 2015, managing an advance of only 0.8% this year, after 1% in 2014, but likely avoiding an outright downturn.' i: u7 h! q% E# V$ d" |
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However, Newfoundland and Labrador — also reliant on energy revenues — could contract more significantly this year, by 1.3%, and in 2016, by 1%.
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@4 j9 s2 g8 Z" S- `( T# L3 |5 \In contrast, Central Canada “should enjoy a small upside surprise,” thanks mainly to a healthy U.S. economy, CIBC predicts, along with a lift in exports from a weak Canadian dollar.9 d1 J6 ~1 u i) A
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! y8 T" }9 }8 YThe best oil traders in the business say this rout is not over- J- V: g9 Z5 {) i5 B7 s
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; M+ }( F$ A+ s3 ^- `3 @The Ontario economy will expand 2.8% this year, up from 2.1% in 2014, and add 2.8% next year, according to CIBC. Quebec should add 2.4% this year and 2.6% in 2016, after a restrained advance of 1.8% in 2014, the bank said. At the same time, British Columbia will continue its mid-2% growth trend.
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! Y/ y( s$ X5 ?* ~7 E+ x$ E“That will translate into commensurate shifts in the employment picture, alleviating pressure in some areas — where, if anything, workers are currently in scarce supply — and lowering the jobless rate in Central Canada, where it has been stuck above the national average.”, D7 k( M, R( T: ^8 A
9 ~# X) w( y1 l/ F8 ?/ [. S; Y5 L! _For example, Alberta’s jobless rate could rise to an average of 6.8% this year, from 4.7% in 2014, the CIBC said, while Ontario should see its unemployment level fall to 6.6% from 7.2% last year.
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CIBC expects overall growth in Canada to be around 1.9% this year, down from 2.4% in 2014, and rising by 2.5% next year.# D" K( R& S) z' `
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Contrast those with the Bank of Canada’s 2.1% outlook for this year and 2.4% in 2016 issued in January, when policymakers surprised markets by cutting their benchmark lending rate to 0.75% from 1%, where it had stood since September 2010.
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0 ?, a; L- Q' p3 b# U* o9 jThe central bank’s GDP forecast is based on an average oil price of US$60 a barrel in 2015 and 2016. Crude was trading above US$53 on Tuesday, a gain on recent sessions.8 Z. c7 P- _, a m: K
" j6 G; P6 n: k% `5 mMeanwhile, the Canadian dollar closed near the US81￠ level.) Y; ?# b8 t+ c) S, c0 G0 B# J
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The regional shift is also evident in the housing market, where the slowdown in Calgary and Edmonton helped pull down national sales by 3.1% in January from December and by 2% from a year earlier, the Canadian Real Estate Association said Tuesday.
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“As expected, consumer confidence in the Prairies has declined and moved a number of potential homebuyers to the sidelines as a result,” CREA president Beth Crosbie said.3 h0 ?- y8 z! x5 t1 j! r( Y0 M
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Total January residential sales in Calgary were down 35.5% from a year earlier, while Edmonton fell 22.7%, Saskatoon lost 24% and Regina was off 6.9%.$ ?3 s, Z! {0 h; U( V% g* R& ]
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“There’s little mystery behind the sudden reversal of fortune for the national figures, as sales in Calgary and Edmonton — and Saskatoon — fell more than 20% from a year ago, in what had been the hottest markets in the country,” said Douglas Porter, chief economist at BMO Capital Markets. |
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