Alberta is poised to experience the largest economic decline in Canada this year – and the worst that the province has ever experienced in a single year, according to a new forecast from RBC Economics.
He said the collapse in oil prices was a “big blow” for the oil producing regions of the country, including Alberta. Oil companies have cut spending plans and cut production, the report said.
“The recession will spill over into other sectors of the economy, further weakening consumer spending and business investment,” said the minister. report released this week.
“We now expect Alberta’s economic contraction – to -5.6% – to be the worst the province has ever experienced in a single year and the largest in Canada.”
As the report indicates, Alberta had not fully recovered from the previous collapse of 2014-2016. The latest price drop will significantly reduce cash flow in the energy sector and reduce revenue from government fees.
“Saskatchewan and Newfoundland and Labrador will not fare much better with contractions of -4.0% and -3.2% respectively,” said the report.
All provincial economies to contract
The bank also says that every provincial economy will contract considerably this year, as none will be immune to the COVID-19 shock.
“The shock will hit every province, regardless of the number of cases of infection in each province,” said the report.
Periods of economic contraction typically include rising unemployment rates, and many companies are laying off because the pandemic is hampering economic activity.
RBC expects Alberta’s unemployment rate to reach 11.5% in 2020 and 10.5% on average in 2021.
Coronavirus and the oil price war at stake
Businesses have already spent billions of dollars on capital spending, and a new report this week predicts sharp production cuts may soon follow.
Rystad Energy, an energy research company based in Norway, says that the impact of the coronavirus pandemic and the price war has created a global supply surplus so large that western Canadian oil production will have to be reduced by around 11%, or 440,000 barrels per day (bpd).
The country is days away from running out of available storage capacity, he said.
“Western Canada’s storage infrastructure has a generally accepted maximum storage capacity of approximately 40 million barrels,” said Mr. Rystad.
“Based on our calculations, more than 30 million barrels of crude oil and diluted bitumen are already stored, and the volume should head upmarket by the end of March under current production assumptions. “
Wednesday, federal Bill Morneau Minister of Finance says aid to the oil and gas sector is not far behind, adding that one of Ottawa’s goals is to ensure that small and medium-sized businesses have the credit facilities they need.