The ugliness isn’t over for Alberta’s oilpatch but the worst of it has likely passed, observers said Friday as Statistics Canada posted some gloomier-than-expected economic data.
“I think the mood and apprehension was far worse in January than it is now,” said ATB Financial chief economist Todd Hirsch.
“That said, you wouldn’t call the current environment bright.”
The Statistics Canada figures showed the Canadian economy contracted by 0.6 per cent during the first quarter on an annualized basis – the worst performance in nearly six years and the first dip into negative territory since 2011.
The discouraging news underscores the major role Alberta and its energy sector play in the Canadian economy, Hirsch said.
In June 2014, the U.S. benchmark crude price averaged US$105.79 a barrel. By January of this year, it had shrivelled to just US$47.22 – a drop of about 55 per cent.
For several weeks, West Texas Intermediate crude has been locked in the US$55 to US$60 range, but few in the oilpatch are celebrating as many projects need a higher price than that to turn a profit.
At the beginning of the year, many were fretting about the prospect of US$30 oil, Hirsch recalls.
“I think we really need, as Albertans, to guard against falling into too much pessimism,” he said.
“I think this is going to be a garden-variety downturn, but nothing like some of the epic recessions we’ve seen in the past.”
On Thursday, the Conference Board of Canada said a recession in oil-centric Alberta is unavoidable this year, but it won’t be as bad as the 2008-2009 downturn.
The Ottawa-based think tank is expecting the province’s economy to shrink by 0.7 per cent in 2015 before growing by a modest 1.1 per cent next year.
The board expects 24,000 job losses in the construction and mining sectors, which would, in turn, hurt the housing market and retail sales.
Alberta’s unemployment rate was 5.5 per cent in April, better than the national average of 6.8 per cent.
But the job numbers are likely not reflecting the full impact of the crude slump yet, said the Conference Board’s Matthew Stewart. That’s because so many oilpatch workers don’t officially reside in Alberta, but fly in and out of work sites for a week or two at a time from Atlantic Canada and elsewhere.
“Those are the first ones to take the impact,” said Stewart.
“I think eventually we will start to see a pickup in unemployment, but I don’t think it will go up quite as high as Ontario.”
Scott Smith, market analyst with Cambridge Mercantile Group, said most oilpatch players “have their hatches battened down” and have already made most of the cuts to spending and jobs they’ll need to ride through the slump.
But that doesn’t mean the industry is out of the woods yet, he said.
“I don’t think we’ve seen the final flow-through effects of job losses in the oilpatch. I think there’s a bit more pain to come, but I don’t think it’s cataclysmic at this point unless something really bad happens with oil in the next three to six months.”