Alberta may be sliding into recession following oil price crash
Alberta, Canada’s richest province, could be sliding into recession as investment in the petroleum sector nosedives following plunging global oil prices.
The Conference Board of Canada (Board) informed that when prices fell to such low levels in the last recession, engineering investment in Alberta plunged by $18 billion, 30,000 jobs were lost in the oil and mining sector, and housing starts declined by 75%.
The Board fears that a similar (perhaps less severe) fall in investment, housing starts and jobs may be in store for the province if oil prices do not rise or continue falling.
So far, there have been no signs of declining house or job numbers. However, oil is Alberta’s main export and the falling prices are bound to have an impact. The Board wrote “The province is certain to suffer, especially on the employment front, from the drop in oil prices – and it is likely to slip into recession.”
Mr. Antunes says he is most concerned about investment. (Image: Conference Board of Canada)
Deputy chief economist at the Conference Board, Pedro Antunes, said regarding oil prices and revenues:
“You’ve essentially cut your revenue stream in half in terms of oil revenues. That will have important repercussions and it will trickle down through all parts of the economy though we are most concerned about investment.”
Royal Dutch Shell said it would reduce its workforce in its Albian Sands mining project in northern Alberta by up to 10%, which could mean 300 jobs. It is the first oil giant to announce significant cutbacks so far this year.
The Board says the drop presents risks – both downside and upside – to the overall Canadian economy. If oil prices continue to fall, they will cause problems for energy companies, threatening their bottom lines and discouraging investment.
However, consumer spending should rise as Canadians find they have more spare cash after spending less at the pump.
The Conference Board of Canada wrote:
“Our December survey of consumer confidence showed a big jump in the share of respondents who said their financial situation had improved over the past six months. And it also found that more respondents believe that now is a good time to make a major purchase—which also bodes well for consumer spending.”
Suncor Energy Inc. said it would cut 1,000 jobs and reduce capital spending by $1 billion this year.