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A pumpjack operates near Cremona, Alta., Thursday, Oct. 1, 2020.Jeff McIntosh/The Canadian Press

Low oil prices and the lasting effects of COVID-19 will likely keep Alberta’s economy from bouncing back to prepandemic levels for three years, according to a new forecast from ATB Financial.

The Crown-owned bank released an economic forecast on Thursday that projects a 7.1-per-cent drop in GDP this year, followed by a sluggish recovery as unemployment numbers remain above 10 per cent.

ATB describes the next few years as a “marathon” that will be slowed by continued effects of the pandemic, including the potential for new disruptions from a second wave and crude prices that are expected to remain below $50 a barrel into 2022.

Robert Roach, ATB’s director of research, said even as the economy begins to pick up next year, unemployment rates aren’t expected to improve significantly and the added uncertainty of the pandemic, which has rippled throughout the economy, will only make that problem worse.

“So if you put those things together, it’s long, long recovery period,” Mr. Roach said in an interview.

“We really need tourism, oil and gas, manufacturing and retail – all those pieces to get back to where they were for the whole economy to be back where it was before the pandemic."

The province’s economy was struggling in the years leading up to the pandemic after a crash in oil prices that began in late 2014 set off years of high unemployment and blew a hole in the province’s finances.

In March, a dispute between Russia and Saudi Arabia sent prices into the negative just as the COVID-19 pandemic forced the shutdown of much of the economy and reduced global oil demand. Prices have recovered somewhat, with West Texas Intermediate trading at about US$42 a barrel on Thursday, but demand remains weak even as production ramps up.

The ATB forecast projects GDP increasing by 3.3 per cent in each of the next two years, with the province’s economy not reaching 2019 levels until 2023.

Mr. Roach said the province’s economy could recover more quickly than ATB’s forecast if oil demand picks up faster. On the other hand, widespread lockdowns related to COVID-19, either in Canada or elsewhere in the world, could make the picture even worse.

“If oil went south again in terms of oversupply or the pandemic hits the economy harder, those are the two punches that would knock us back down,” he said.

The provincial government has said Alberta is expected to have a deficit this year of $24.2-billion, up from $6.8-billion projected in February, largely because of a collapse of oil and gas royalties. Premier Jason Kenney has said the province is facing the greatest economic challenge since the Great Depression of the 1930s.

Finance Minister Travis Toews said the ATB report is in line with the provincial government’s own projections, which will be updated in November.

“Clearly, we are impacted disproportionately because of the size of the energy industry in Alberta, and that’s a reality,” Mr. Toews said.

“It’s been an incredible wealth creator in this province, in this nation. We believe it has a great future, and yet we know it’s going to be bumpy here for a couple of years.”

The United Conservative Party government was elected last year on a promise to return to balanced budgets by 2022-23, but Mr. Toews has conceded that’s no longer possible. He said he can’t provide a credible timeline for when that will happen, although he said those details will be part of the provincial budget in the spring.

“I think we’ve been pretty clear with Albertans on this: We will not balance in our first term," he said. “To do so would create undue hardship on Albertans and the economy as a whole.”

In the meantime, he said recent announcements designed to diversify the province’s economy, such as a new strategy for hydrogen and plastic, as well as legislation to encourage geothermal power projects, will help stabilize the provincial economy.

The Opposition New Democrats' finance critic, Shannon Phillips, said the ATB report underscores that the government has not done enough to diversify the province’s economy away from the vagaries of oil and gas prices.

She criticized recent announcements such as a push to boost the province’s geothermal power industry as a “plan to make a plan” and said the government should fully restore programs from the last NDP government, such as tech incentives.

“They are very late to the game," Ms. Phillips said.

“The horse has truly left the barn, and the companies have left downtown Calgary. It’s disappointing that those things were not done when we were facing a recession at this time last year.”

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