CALGARY — ATB Financial is forecasting that Alberta’s economy will contract in 2015 — a more pessimistic view than in early July when the regional financial services group said the province would likely avoid a recession this year.
“After five consecutive years of exceptionally strong growth, it now appears certain that Alberta’s economy will contract in 2015,” the bank wrote in its fourth-quarter outlook released Thursday.
The provincially owned bank predicts real GDP contraction of 0.7 per cent in 2015 before the economy gets out of its slump and grows 1.4 per cent in 2016.
That compares with real GDP growth of 4.4 per cent in 2014, when oil and gas prices were much higher.
ATB says the drop in oil prices is the “single reason” for the economic challenges as prices have fallen to about US$45 a barrel at present from more than US$100 in the summer of 2014.
The drop in oil prices has caused energy companies to drastically cut costs, leading to further job losses as well as reductions in both wages and overtime hours.
ATB is predicting that the unemployment rate will rise to 5.9 per cent this year from 4.7 per cent last year before improving slightly to 5.7 per cent next year.
The bank says it expects the North American benchmark price for oil to trade around US$45 to US$50 a barrel for the rest of 2015, rising only moderately to between US$55 to US$60 by mid-to-late 2016.
Indicators outside the oil and gas industry have shown more stability, with the bank saying residential construction was solid, retail and wholesale trade has stabilized and manufacturing has levelled off.
The report says that agriculture, the Alberta’s second-largest sector, had disappointing crop production this year due to drought in some parts of the province, while forestry remains in good shape thanks to strong prices for lumber.
For the economy to recover, the bank says oil prices would need to rebound at least a little, labour costs would have to rebalance and sectors outside the energy industry such as agriculture, forestry and tourism need to see strong performances. As well, the Canadian dollar needs to stay low to help exporters.
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Ian Bickis, The Canadian Press