These are stories Report on Business is following Tuesday, Feb. 17, 2015.
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CIBC sees Alberta recession threat
The heart of Canada's oil industry appears headed for a "mild and temporary" recession this year as the country's energy sector cuts back, Canadian Imperial Bank of Commerce warns today.
Alberta's economy will contract by 0.3 per cent and unemployment will spike to 6.8 per cent, chief economist Avery Shenfeld and Nick Exarhos said in a new forecast.
This will shift the fortunes of Canada's provinces dramatically, as Alberta sinks from leader to laggard and Ontario rises to the top, spurred on by a weaker Canadian dollar.
"Alberta looks headed for a mild and temporary recession," the CIBC economists said.
"Even if we had a small positive for annual real GDP growth, that would have included at least two negative quarters, and nominal GDP would be well into negative territory," they added, referring to the traditional definition of a recession, or two quarters of contraction.
Alberta, Canada's biggest oil and gas exporter, will be hit not so much by production cutbacks, but rather by the "squeeze" on capital spending by its companies.
Indeed, Canadian oil companies have been slashing their budgets and laying off workers.
"In total, a small reduction in planned output growth, the loss of investment growth that might have otherwise occurred, the negative from year-on-year cuts to capital budgets in the energy sector, and new government spending restraint, will shave over 5 per cent from real GDP," the CIBC report said.
"There are some offsets, as the province's non-energy exporters will be helped by the weaker currency, and its domestic spending will be supported by interest rate cuts."
Other economists have also raised the spectre of a recession in Alberta this year.
According to the new CIBC forecast, the province's economy will rebound in 2016, perking up by 2.3 per cent, and the jobless rate will ease, but still to an elevated 5.8 per cent.
Canada's other oil-sensitive provinces, Saskatchewan and Newfoundland and Labrador, will also be hit by the slump in prices, which have now regained some ground, though the former will not see a recession, the report said.
Saskatchewan's economic growth is pegged at 0.8 per cent this year, with a pickup in 2016 to 2.4 per cent, while the jobless rate is forecast to rise significantly to 5.4 per cent and 5.1 per cent, respectively.
Newfoundland and Labrador could also see a recession, with a contraction this year of 1.3 per cent and next year of 1 per cent and levels of unemployment at 12.8 per cent and 14 per cent.
"In contrast, central Canada and B.C. should enjoy a small upside surprise," the CIBC economists said.
Economic growth in Ontario is forecast at 2.8 per cent in each of the two years, and in Quebec at 2.4 per cent and 2.6 per cent.
British Columbia, in turn, should see growth of 2.5 per cent and 2.7 per cent.
Provincial governments, of course, are also experiencing a change tied to economic growth forecasts.
"The bond market is well aware of the linkage between the energy sector's fortunes and the province's fiscal results," the economists said of Alberta.
"While there are other drivers, including a recent preference for the liquidity associated with larger issuers, Alberta's spreads to Ontario have been closely tracking Western Canadian Select priced in Canadian dollars," they said, referring to Canadian oil prices.
"But investors should also not lose sight of the yawning gap between Alberta's fiscal starting point and that of provinces to its east," they said, citing Alberta's lone position of starting from a strong position.
Some observers expect the world's oil companies to cut further still.
Capital spending for this year is already well below last year's levels, by some $150-billion to $200-billion lower, BMO Nesbitt Burns calculates.
But production is still holding up.
"We think that the industry will need to reduce capital spending further if crude oil prices remain at or below current levels," BMO analysts Randy Ollenberger and Jared Dziuba said in a recent report.
"Current budgets reflect an average oil price assumption of $60 a barrel U.S., still well above current oil prices and our $51-a-barrel assumption for 2015. In our view, maintaining capital budgets at current levels would place unsustainable pressure on balance sheets if oil prices remain at current or lower levels."
- Oil extends rally as IEA warns of Mideast risks
- Oil and the Canadian dollar: The modest start of a new reality?
- Canada's oil patch is under siege
- Jeffrey Jones: Crude collapse leads to layoffs, public spending cuts in Canada's oil patch
- Jeff Lewis and Carrie Tait: Oil firms cut jobs, budgets as crude drop hit earnings
- Shawn McCarthy: IEA expects oil to stay below triple-digit highs through 2020
Home sales slip
The oil rout continues to play out in Canada's housing markets.
On a national basis, home sales fell in January by 3.1 per cent from December, and by 2 per cent from a year earlier, the Canadian Real Estate Association said today.
While sales were down from December in about 60 markets, the drop was primarily driven by the troubles in Alberta and Saskatchewan, the group said.
"As expected, consumer confidence in the Prairies has declined and moved a number of potential homebuyers to the sidelines as a result," said president Beth Crosbie."
The average sale price rose 3.1 per cent from a year earlier to $401,143, while the MLS home price index, which is deemed a better representation, gained 5.2 per cent.
Worth noting is the inventory level, or the number of months it would take to sell what's on the market.
That now stands at 6.5 months, the highest since April, 2013, while another key measure, sales to new listings, stands at 49.7 per cent.
January marked the first dip below the 50 mark since December, 2012.
RBI posts loss
The new company formed by the marriage of Tim Hortons and Burger King has posted a hefty fourth-quarter loss, but a jump in revenue and sales growth in both brands.
Restaurant Brands International Inc. today reported a loss of $514.2-million (U.S.), or $2.52 a share, and revenue of $416.3-million.
Comparable sales growth came in at 4.1 per cent for Tim Hortons and 3 per cent for Burger King, which acquired the coffee chain last summer for $12.6-billion.
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