Alberta recession? The mindset is already setting in

For a decade now, Alberta has been the promised land, economically speaking, Kathleen Petty writes, but that looks like it's about to change. When even the premier says Albertans have been living above their means, you know there is trouble coming.

For a decade now, Alberta has been the promised land, economically speaking, but that might change

'The Suncor oil sands facility near Fort McMurray, Alta., one of the largest. Suncor announced this week that it was cutting spending by $1 billion in 2015 and laying off 1,000 employees. (The Canadian Press)

"We have been living beyond our means in this province" says Alberta Premier, Jim Prentice. The dramatic, precipitous drop in the price of oil makes that painfully clear.

Having the lowest tax burden in Canada with high public sector salaries is not a sustainable model. It never was.

For years now, Alberta has been the land of plenty. The promised land. Most Canadians on the move — moved here. Why not?

Between 1995 and 2014 the average annual employment growth rate in Alberta dwarfed all the other provinces. Alberta's average employment growth over a 20-year period was 2.50 per cent a year; Ontario was a distant second at 1.44.

What now? As economists and politicians peer over the precipice, looking for the bottom for oil, Ontario's premier is predicting a turnaround for her province.

Kathleen Wynne says "we have a diverse economy and it can be a buffer in a time like this, against some of that volatility." Perhaps, but will it be enough?

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While manufacturing benefits from a low dollar, Central Canada will also have challenges with the plummeting price of oil.

As Todd Hirsch, the chief economist at Alberta's ATB Financial, points out, "many manufacturers in Ontario and Quebec have actually been tied into Western Canada's oil and gas sector.

"While the auto sector used to be the largest area of growth for manufacturing, over the past 10 years, it has been specialized equipment, boilers, pumps and other inputs used in the extraction of petroleum" that has kept Ontario's manufacturing sector alive.

Hirsch says Wynne is correct in saying Ontario can be a "buffer", but it won't "be enough to propel overall Canadian growth higher in 2015."


Hirsch also points out that some manufacturing shifted back to North America over the past five years as wages rose in China, and that low oil might change the calculation.

"With plunging fuel costs, the relative balance could once again shift slightly back to Asia. Transportation costs are a huge part of the equation," he says, "and if these costs are lower, Asian producers will gain the advantage."

Alberta Premier Jim Prentice says oil prices have plunged so far so fast that this year's projected budget surplus will now be a $500-million deficit. (The Canadian Press)

But shift back to Alberta, and everyone here has an opinion on just how bad this could get.

The Alberta premier says we haven't seen the bottom yet for the price of oil. The Conference Board of Canada is predicting a recession. The deputy-governor of the Bank of Canada is warning the price of oil could remain low and the impact on the Canadian economy would be "non-trivial."

I'm not exactly sure what that means, but it doesn't sound good.

It wasn't that long ago when Federal Finance Minister Joe Oliver was warning us about the consequences of not getting Alberta's bitumen to market.

"The choice is stark," he said. "Head down the path of economic decline, higher unemployment, limited funds for social programs like health care."

Today, few are obsessing about getting bitumen to market as much as wondering if it's even worth the effort — or more specifically, the cost.

Suncor, Shell, Canadian Natural Resources, Husky are all pulling back. Billions of dollars worth of spending and job cuts are beginning, and most believe this is just the opening act.

I recently asked a broker if he believed we were going into recession. "We already are," he said. Not technically of course — but the mindset of Albertans is starting to turn.

People here, though, are proud of their "pull yourself up by your bootstraps" mentality.

When our CBC reporters asked people in the construction industry — an industry bound to feel some pain very soon — how they were feeling about the economy and the prospect of recession, a housepainter replied, " there might be a bit of a slowdown … I don't think there's anything to worry about."

It's an admirable quality, to take bad news in stride. I can recall similar sentiments during previous slowdowns. Still, it might be a tad too sanguine.

This isn't 2008-2009. Prentice calls it the "most significant challenge in a generation."

This is not a "normal commodity cycle," he says, and will create huge revenue shortfalls for years.

The national spillover, too, could be enormous.

Last summer, we at CBC Calgary asked the people at the School of Public Policy at the University of Calgary to look at the national employment rate and assess Alberta's impact.

Can Central Canada pick up the job slack? as Premier Kathleen Wynne suggests. Her manufacturing sector isn't what it used to be and Quebec's Philippe Couillard is on an austerity drive. (Clement Allard/Canadian Press)

Economics professor Ron Kneebone ran a model in which he reduced Alberta's employment growth between 1995 to 2014 to the Ontario average and calculated how that would change Canada's unemployment rate.

He described the result as startling. "By August 2014," he wrote, "the unemployment rate (7.16 per cent) would have been 9.39 per cent had employment in Alberta grown at the same rate as Ontario."

Kneebone concedes there a number of assumptions within that calculation that can be credibly and persuasively challenged.

However, he believes that "were it not for the economic boom in Alberta, the Canadian economy and the challenges being dealt with by fiscal and monetary policy makers would be very different.

"I am willing to bet, if asked, very few of those policy makers would suggest they would prefer to deal with the issues the Canadian economy would be facing had the boom in Alberta not occurred."

It seems we're about to find out if Kneebone is right.


Kathleen Petty

CBC Calgary's Executive Producer

Kathleen Petty is the one of the founding producers of what is now called CBC News Network. Petty created and produced several shows for the network while also hosting for more than 17 years. In 2006, she moved to radio and hosted the national political affairs program, The House on CBC radio along with national election coverage as well as hosting the local #1 morning show in Ottawa. Since then, Petty has written political analysis for and is now executive producer of CBC News in Calgary.