Prime Minister Justin Trudeau visits Alberta’s oil patch Thursday as the provincial economy struggles with the negative impact of plummeting oil prices. Companies in the once thriving oil-and-gas industry have slashed capital spending and more than 40,000 jobs have been lost. After meeting with Alberta Premier Rachel Notley in Edmonton on Wednesday, Mr. Trudeau now gets to sit down with some key players in the hard-hit energy sector and talk over the issues.
Growing budget deficit
Low oil prices have hit Alberta’s government where it hurts: a steep decline in oil and gas revenues. The government is expected to post a $6.1-billion deficit this year.
Alberta’s unemployment rate rose to 7 per cent at the end of 2015, up from 4.7 per cent at the end of 2014, according to Statistics Canada. Economists warn unemployment could continue to climb this year as more companies in the oil patch lay off employees. “Everybody is pulling back investment plans for 2016,” Conference Board of Canada chief economist Glen Hodgson said. “Calgary is going through hell right now.”
The price for benchmark West Texas intermediate crude is currently hovering around $33 (U.S.) a barrel after trading in the $40-to-$60 range for the better part of last year. Most economists expect a gradual recovery in the price of crude through 2016 but no major rebound. Weak global demand and continued growth in the supply of oil as Iran boosts exports are the order of the day.
GDP and capital spending
Scotiabank forecasts that Alberta’s GDP is set to fall by 2 per cent in 2016, a sharp downturn from the 3.5-per-cent average increase in GDP in the 2000-2014 period. Oil and gas account for one-quarter of Alberta’s GDP. Capital spending by companies is expected to contract by about 25 per cent this year and that’s in addition to the 40-per-cent decline in 2015, according to Scotiabank.
Home prices have not been spared the ripple effect from turmoil in the oil patch: Calgary’s benchmark price was down 3.3 per cent year-over-year in January, according to BMO. In stark contrast, Toronto’s benchmark price soared 11.2 per cent and Vancouver’s took off 22.9 per cent in January.
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