Persistent weakness in the energy sector and its spillover effects on consumer confidence will hit the Alberta economy hard this year, says a new report by RBC that predicts an “anemic pace” of growth in the province.
The bank’s latest Provincial Outlook, released Thursday, forecasts annual real GDP growth of 0.6 per cent in the province for 2015. That revision is down from the 2.8 per cent forecast the bank made in December. The new outlook predicts growth of 1.1 per cent in 2016.
The 2015 forecast is the lowest economic growth rate in the country. In 2014, Alberta had the best growth at 4.2 per cent.
“Alberta saw a dramatic turn of events in recent months, as it became clear that the steep drop in crude oil prices since mid 2014 would have profound adverse repercussions for the province’s energy sector,” said Craig Wright, senior vice-president and chief economist at RBC. “The initial position of strength in the economy is likely sufficient to keep the province in growth territory in 2015, though the risks of a recession can’t be dismissed.”
RBC forecasts economic growth of 2.4 per cent this year and 2.3 per cent in 2016 for Canada. The economy grew 2.5 per cent in 2014.
The report said widespread capital spending cutbacks announced by energy firms since late last year highlight the direct hit that low oil prices will have on investment in Alberta this year,.
“Accounting for a quarter of economic activity in the province, a sharp drop in non-residential business investment is expected to cut more than 1.5 percentage points directly off Alberta’s economic growth in 2015,” said Wright.
The report said very strong job creation in recent years in the province is likely to stall — employment is expected to decline by 0.1 per cent this year, after growing 2.2 per cent in 2014. Employment growth of 0.7 per cent is forecast for 2016.
Unemployment is expected to rise to 5.7 per cent this year, from 4.7 per cent. The jobless rate is then expected to decline slightly in 2016, to 5.4 per cent.
RBC forecast for retail sales growth is just one per cent, down from 7.6 per cent in 2014.
The housing market is also expected to take a major hit with starts in the province plunging from 40,590 last year to 29,300 this year and 30,800 next year.
Nick Ford, economist with ATB Financial, said Statistics Canada’s latest oil supply and disposition figures indicate that Alberta’s oil producers ramped up extraction and exported more oil from the province in the final month of last year rather than cutting production as oil prices fell in December.
He said oil extraction in Alberta rose by 2.8 million barrels, or 3.1 per cent, from November to December.
“This means that the total amount of crude oil withdrawn by producers in our province was 5.7 per cent higher than the previous year,” he said. “Increased extraction helped crude exports rise to the highest level seen in 2014. About 75 million barrels of oil were exported from our province in December, an increase of nine per cent from November. Surprisingly, on the year as a whole, crude exports were 11 per cent higher than in 2013.”
Ford said that oil prices hovered in the $60 US a barrel range for West Texas Intermediate in December so Alberta’s producers pumped more oil to get paid the higher rates before oil prices fell further.
“Another reason is the simple fact that winter is usually the busiest time of the year for the rigs,” he said.
“Looking forward, the first oil output and distribution report of 2015 is destined to be weaker. Oil’s current price ($US 50/barrel) is much softer than the rates producers were being paid at the end of last year. And, drilling rig counts and utilization rates have fallen significantly in recent weeks too.”