Economist doesn’t expect an exodus of people from the province because ‘there are not really a lot of other places doing much better’
RED DEER — If Todd Hirsch was a betting man, he would lay odds on the Canadian dollar falling and the price of crude oil crashing below $20 per barrel.
“For 2015-16, I would say there is a growing sense of anxiety about the future of the province,” he said at the Alberta beef industry conference held in Red Deer Feb. 18-19.
“I think the next four to six months could be the worst of this downturn,” he said.
As chief economist for the Alberta based bank ATB, he speculated that agriculture could be one of the bright lights for the future. However, with so much emphasis placed on the fortunes of the petroleum industry, it may be overlooked.
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Considering probabilities around certain events, he said the odds are 75 to one that oil could return to a healthier US$80 per barrel.
The 12 nation OPEC cartel has been pumping out as much oil into the market as possible to drive down prices.
OPEC would have to change policies for the oil price trend to turn around and Canada, the United States, Russia and Brazil would have to curtail their output as well.
“We would also need demand to pick up strongly,” he said.
That would require the economies of Brazil, Russia, India and China to rebound. However Brazil and Russia are in recession, while India’s and China’s economies have softened.
Pessimistically, oil could drop to $10- $20 a barrel.
“This is a scenario that people in Alberta have to recognize is out there,” he said.
The likeliest scenario is oil at $50-55 by the end of the year. For the first half of the year the market will be volatile as it seeks bottom.
Consequently, the petroleum industry will continue to whittle down its costs resulting in more job losses.
The fortunes of oil have fallen before but unlike the 1980s, interest rates are record low. He does not expect the Bank of Canada to raise interest rates in 2016.
The value of the loonie will follow and could go down to 67 cents.
“I don’t know if we have seen the end of the rout on the Canadian dollar yet because it moves in sympathy with oil prices,” he said.
The Alberta labour market is also in upheaval and unemployment could hit eight percent, placing it above the national rate as the energy sector continues to shed workers.
The last time Alberta was in this position was 1988. For the most part the provincial job market is stable at around four percent.
“I don’t expect stampedes of people leaving like we saw in the ’80s. The main reason for that is when you look at the Canadian economy there are not really a lot of other places that are doing much better,” he said.
Thirty years ago there were good high paying union jobs in southern Ontario but that is not the case this time. However, British Columbia is in the unusual position of leading growth across Canada, especially in the Lower Mainland with in-creasing construction and manufacturing jobs.
The housing market is also shaky with moderate price drops of five to 10 percent. Calgary will get hit harder than Edmonton with a worst case scenario being real estate falling by 20 percent.
Hirsch does not anticipate a wave of foreclosures. A typical mortgage is four percent and most households have two incomes that could help prevent defaults.
Agriculture could be in a brighter position.
Diversification is a common talking point for governments but no one seems to define who should do it or what should be done.
“For decades governments with different policies have tried to create more diversity and by and large they have been under whelming in their success,” he said.
This time round a more diversified economy a year from now could result. Diverse industries like forestry, agriculture and tourism are growing.
Hirsch hopes to see new industries come to Alberta because conditions are right for it.
“When the petroleum industry is on fire and oil is at $100 it turns into something of a black hole that sucks everything into its gravity.”
It takes all the office space and workers while other industries struggle to compete against it.
Labour costs are coming down, office space and industrial land are available so that might encourage others to come and start new businesses.
“What Alberta’s economy is going through right now is not temporary. It will fundamentally change.”
