Alberta’s Economy: The Devastating Impact of COVID-19
The Worst in the Country
A new report from the Conference Board of Canada predicts that Alberta’s economy will suffer a staggering 11.3 per cent decline in 2020, making it the worst hit province in the country. This prediction is significantly higher than the initial estimate of 4.3 per cent GDP contraction, which was made near the height of the pandemic in April.
The Double Whammy
The report attributes Alberta’s deeper decline to the "double whammy" of the lockdown and the collapse of oil prices. West Texas Intermediate prices were hovering above US$50 in February before plummeting into negative territory. Although crude prices have rebounded, they are still trading at around US$42.
Oil Prices: A Pessimistic Outlook
According to the report, the outlook for oil prices over the next two years is "quite pessimistic" due to the impact on transportation. This affects not only profits and royalties but also capital investment. Business investment is expected to remain sluggish until Spring 2021, while a sharp decline in household spending won’t be corrected until 2022.
Provinces Relying Heavily on Oil
Other provinces that rely heavily on the oil-and-gas sector, namely Newfoundland and Saskatchewan, are in a similar position. The board expects them to lose 7.1 per cent and 8.6 per cent of GDP respectively.
Ontario and Quebec: Revised Projections
Initially, the report expected Ontario and Quebec’s downturns to result in GDP contractions of 3.2 per cent and 3.8 per cent, but these projections have now been revised to 7.6 per cent and 7.2 per cent respectively.
Quebec’s Recovery: A Long Wait Ahead
The report notes that Quebec’s crucial aerospace industry may have a long wait ahead before it can fully recover. Air travel is unlikely to return to normal levels until late 2021 or 2022.
Ontario’s Recovery: Tied to the US
For Ontario, it’s the automotive industry that’s troubled. The report estimates that auto sales plunged by close to 60 per cent this year due to a drop off in exports to the U.S. The province’s recovery will continue to be tied to the U.S. and its ability to keep cases under control.
Conclusion
The Conference Board of Canada’s report paints a grim picture for Alberta’s economy, as well as other provinces that rely heavily on the oil-and-gas sector. Business investment is expected to remain sluggish until Spring 2021, while household spending won’t be corrected until 2022. The outlook for oil prices over the next two years is "quite pessimistic," affecting not only profits and royalties but also capital investment.
Key Statistics:
- Alberta’s economy will suffer a 11.3 per cent decline in 2020
- Oil prices are expected to remain sluggish, affecting business investment and household spending
- Newfoundland and Saskatchewan are expected to lose 7.1 per cent and 8.6 per cent of GDP respectively
- Ontario and Quebec’s GDP contractions have been revised to 7.6 per cent and 7.2 per cent respectively
Sources:
- Conference Board of Canada report
- West Texas Intermediate prices
