Since the discovery of Leduc No. 1, in 1947, Alberta has become dependent upon the energy sector. Each time the province experiences an economic bust, there has been robust discussion on how to get Alberta off the unsustainable ‘petro addiction’. While there has been some headway in economic diversity, the province continues to build budgets based on oil price assumptions.
Oil traders are expecting weak oil demand over the next 12-18 months with no significant change in pricing. Canadian oil producers are taking drastic measures such as curtailing investment and slashing operational costs to remain viable. Suncor Energy recently announced that they will be cancelling a number of new projects and cutting up to 15% of their workforce.
But it’s not all doom and gloom for Alberta’s energy sector as work continues on the Keystone XL pipeline and a possible Canada-Alaska rail link is on the horizon.
Data
Although the Conference Board of Canada expects GDP to rebound in 2021, the mid-term forecast is for it to remain far below potential as some sectors continue to struggle. A record number of companies applied for creditor protection in May and June and more will follow.
Alberta is expected to have the second-highest provincial contraction of GDP for 2020. Prolonged unemployment and consumer optimism had a huge impact on home sales forecasted out to 2022.
According to Angus Reid Institute, 51% of Albertans recently surveyed indicated that their economic fortunes worsened over the past year and remain the most pessimistic about the coming year (ARI).
Economists are expecting more favorable growth for 2021 and 2022 (see chart on the left).
On the Horizon
Small businesses were hit particularly hard by COVID-19 – more than half reported a decline in revenue in excess of 20%. Small businesses employ almost 70% of the private workforce. Since 1952, the tax gap between corporations and private industry has widened significantly. The private sector accounts for the bulk of tax revenue. Financing public goods, infrastructure, and COVID-19 programs will be challenging without finding other revenue sources, which may include a provincial sales tax.
Looking Forward
Business investment will continue to suffer over the next few years; however, a shining light for Canada is LNG, now in its third year of construction. Once operational, it is expected to increase Canada’s GDP by $11B annually. It will remain to be seen if Kenney’s business tax cut and infrastructure investment will be enough to lure firms to relocate to Alberta and stimulate sustainable economic growth.