I hate to be the bearer of bad news, but it seems the R-word may soon be back in Alberta — recession.Alberta’s economy is expected to shrink by the narrowest of margins, contracting by 0.1 per cent this year, and the province may already be in the midst of a slight recession, according to the Conference Board of Canada.A new study from the think-tank was released the same day Husky Energy said it will reduce its earlier capital spending plans by about $1.7 billion over a five-year period.These announcements underscore the magnitude of the challenge facing the new UCP government and the overall economy today.Pipeline constraints and oil production quotas continue to thwart growth, while falling construction levels and high unemployment rates weigh heavily on the minds of many Albertans.“What we are seeing in Alberta is a lot of weakness, especially on the investment side associated with the oilpatch,” board chief economist Pedro Antunes said in an interview.“This is a very mild recession. But it is a slowdown nonetheless.”
Oilpatch firms are warning jobs could be lost in the Bonnyville-Cold Lake region in the coming weeks due to the way oil curtailment cuts are calculated.
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It’s not unexpected.Economic data has been feeble since the fall, when pipeline bottlenecks started to undercut the price of Alberta oil. The province began limiting oil production levels this year, supporting prices but undercutting economic output.Other forecasts have projected a deceleration in Alberta’s economy, and ATB Financial said last week it expects a modest 0.7 per cent growth this year.The Conference Board study anticipates gross domestic product shrinking for the first time since the gruelling 2015-16 recession.This year’s outlook is nowhere near as dismal.Some employment growth is still occurring and reasonably strong oil prices are leading to robust corporate profits for some producers.However, the entire scenario isn’t rock solid.“We’ve got a number of very weak sectors out there, so it’s not at all surprising we are seeing a recessionary situation,” said City of Edmonton chief economist John Rose.While curtailment has successfully bolstered domestic oil prices, it is limiting growth prospects and investment.In fact, the recession may have already occurred and, hopefully, be on its way out the door.Conference Board economist Marie-Christine Bernard projects the province’s economy shrank during the final three months of 2018 and first quarter of this year, meeting the technical definition of a recession.She also expects growth to resume through the summer and into the fall.The report also indicates Alberta will flip positions from recording the worst economic performance in the country this year, to leading all provinces at 2.7 per cent growth in 2020.Oil curtailment is expected to wind down at the end of this year, but the issue is complicated.If the quotas are lifted and production increases without sufficient pipeline and rail capacity in place, the province risks seeing crude prices tumble again.“The sooner they can roll that back, the better,” Rose said. “The problem is we don’t have the ability to move the oil products . . . unless we get some kind of joy on the pipeline front.”For many Albertans, particularly in the construction and energy sectors, the weak outlook confirms what they’ve been seeing on the ground.Oilpatch activity decreased earlier this year during a miserable winter drilling season.Petroleum producers are moving cautiously on expansion initiatives and investors aren’t rewarding additional capital spending.Integrated petroleum producer Husky Energy said Tuesday at its investor day that the company will curb its earlier capital spending plans by an average of $350 million annually to $3.15 billion over the next five years.Chief executive Rob Peabody stressed Husky is focused on generating more free cash flow, a familiar refrain in the oilpatch today.“This (is) achieved by reducing the spending and growth in our Western Canada resource play business and pacing our thermal production growth,” he said in Toronto.“Our bias will be to accelerate returns to our shareholders.”On the jobs front, Alberta’s unemployment rate is expected to remain high and average seven per cent this year, slightly above current levels.Retail sales will grow by less than one per cent, while housing starts are projected to fall by 13 per cent across the province.Calgary Construction Association president Bill Black isn’t surprised by talk of a recession, given the decline in major projects being built in the city.A few large developments are proceeding, such as the new BMO Centre expansion. But most new projects come with intense competition and tight margins.
Stampede president David Sibbald, federal infrastructure minister Francois-Philippe Champagne, Mayor Naheed Nenshi, provincial infrastructure minister Sandra Jansen, MP Kent Hehr and Calgary Stampede CEO Warren Connell outside the BMO Centre Tuesday following an announcement of federal funding for the expansion of the facility.
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“It’s a pretty bleak, flat outlook,” Black said. “People are working hard to (get) through it, but no one is expecting a magic silver bullet to come and save us anytime soon.”The Kenney government has inherited a precarious set of economic circumstances, and is trying to change the trajectory.Finance Minister Travis Toews introduced legislation on Tuesday to lower the corporate tax rate by one percentage point to 11 per cent in July, and then drop it to 10 per cent on Jan. 1, to attract new investment to the province.By the time it falls to eight per cent in 2022, Alberta is expected to have a lower corporate tax rate than 44 states and every other province.“There’s no doubt there are significant challenges ahead for Albertans,” Toews said. “It has really encouraged us to move quickly on our platform pieces.”The government is taking steps to control the things it can control, such as taxes, to help the economy, but a new pipeline would make the biggest difference.Alberta has already seen enough of the R-word this decade, and even a modest one should be avoided this year.Chris Varcoe is a Calgary Herald email@example.com