Skip to main content

Andrew Bell has an update on the large forest fire near the BC-Alberta border that is threatening resource development in the area.

Alberta's economy is sliding into recession and its deficit for this year could top $6.5-billion, the province's NDP government says in an economic update.

It is a dramatic change from March, when the previous government forecast a deficit of nearly $5-billion and was expecting the economy to grow in 2015.

Monday's bleak new numbers came as neighbouring Saskatchewan announced it is forecasting a $292-million deficit this year due to low oil prices and the cost of fighting forest fires. The Prairie province had projected a surplus of $107-million in March.

Alberta Finance Minister Joe Ceci avoided using the word "recession" on Monday, but confirmed the update's findings that the economy of the province, Canada's economic engine for much of the past decade, will contract by 0.6 per cent this year and grow by only 1.3 per cent in 2016.

"The last month has been volatile for the energy sector," he said. "It is clear that revenues have dipped even further these past few weeks. If current conditions continue, the final deficit will be in the range of $6.5-billion."

Alberta's new projected deficit is the second-largest in the country as a proportion of its economy, after that of Newfoundland and Labrador.

"There is no doubt many Alberta families and businesses are feeling the effects of the dramatic drop in oil prices," Mr. Ceci said.

On Tuesday, Statistics Canada will report on whether the national economy shrank for a second consecutive quarter. The Federal Balanced Budget Act defines two consecutive quarters of negative growth as a recession.

"Almost certainly, all the headlines on Tuesday will be 'Canada in recession,'" said ATB Financial chief economist Todd Hirsch. "But over the last five years, all of Canada's growth has been coming from Alberta. We've been doing our share of the heavy lifting, but in 2015, we're a drag on the national economy."

His forecast for this year fits with the government's latest numbers. However, he is expecting zero growth next year.

Alberta's government finances are closely tied to the price of a barrel of oil, with royalties paying for as much as one-third of provincial spending during times of high energy prices. Recent fluctuations in oil prices have made forecasting difficult. Over the past week, oil prices have surged from $38.24 (U.S.) a barrel to $49.20 on Monday.

"The situation over the month of August has changed so dramatically, I don't want to say that the forecast is inaccurate, but we might see some revision," Mr. Hirsch said. "Anything could happen in the next few months. We could be at $20 oil or $60-per-barrel oil."

Monday's first-quarter economic data covered the period from April 1 to June 30. The update did not capture the most recent tumble in global energy prices, but it did coincide with the unprecedented victory of Rachel Notley's NDP in early May.

Rig activity in the province's oil sector is down 50 per cent this year, and overall oil and gas investment is down 30 per cent. The reduced activity in the province's oil patch is the result of pain at head offices in Calgary and Edmonton as corporate profits have been halved.

While the government does not expect the provincial unemployment rate to increase beyond its current 5.7 per cent, up from 4.7 per cent in 2014, the Canadian Association of Petroleum Producers says 35,000 jobs have been lost in the oil patch this year. The job losses are a quick about-face for an economy that struggled with severe labour shortages for years.

The government's revenue is forecast at $44.3-billion this year, up $1-billion due to higher-than-expected oil revenue early in the year and higher taxes.

After Ms. Notley's government was sworn in on May 24, it replaced the province's 10-per-cent flat income tax, creating five new brackets for those making more than $125,000 annually, and increased the corporate tax by two percentage points.

The government now projects that expenses will top $50-billion for the first time. That's $1.8-billion higher than projected in March. The extra spending comes from increases for health, education and disaster programs.

A record number of wildfires broke out across northern and central Alberta this year, burning 490,917 hectares. The government has allocated an additional $456-million to cover firefighting. The money will also help agricultural producers hit by a record drought in some areas.

This story corrects an earlier version that incorrectly stated that Alberta is currently in a recession.

Your Globe

Build your personal news feed

Follow the author of this article:

Check Following for new articles

Interact with The Globe