Impact to Alberta's oil and gas could put Canada on brink of recession, says Conference Board

The impact to Alberta's energy sector due to COVID-19 and the oil price war could put the country on the "brink of recession," the Conference Board of Canada said Tuesday in their spring outlook report.

The board expects business investment and exports to substantially decline across the country and consumer spending to ease in the second quarter as the impact of COVID-19 takes hold.

"After slowing to end the year, economic growth has been weak in the first quarter and is expected to contract in the second quarter to 2.7 per cent," said the Conference Board's spring outlook report.

However, the board said growth should resume in the third quarter but suggests that any hopes for an economic turnaround in Alberta for 2020 will not happen.

"The spread of COVID-19 in late January quickly dimmed the prospects for global oil demand, as a number of regions in China and, soon after, Italy came under quarantine, severely limiting travel and other economic activity," read the report.

As well, the battle between two energy heavyweights, Russia and Saudi Arabia sent oil prices plunging.

Oil war with OPEC and Russia

The board said the oil price war involving OPEC and Russia is another key issue expected to put the country on the brink of recession.

With oil hovering around $30 US per barrel, the board expects conventional oil production in Western Canada to scale back and that the oilsands production growth won't be as strong as previously forecasted.

Matthew Stewart, director of national forecasts for the board, said an earlier forecast had Alberta growing by 2.2 per cent after a half point decline last year.

Now, he projects zero growth in Alberta for 2020 and to remain in recession.

"Alberta was going to be one of the growth leaders, really driven by the pickup in exports. All that's gone now, so we're seeing growth, basically 100 per cent evaporate in 2020," he said.

The board said the economy could start to rebound in the fourth quarter during 2021 — with oil projected to top $50 — but it all comes with a measure of unpredictability.

"The downside risk to this outlook is significant. If the dispute between Russia and OPEC drags on, oil prices won't recover as forecast, energy companies will be forced to slash investment and production even more than anticipated," read the report.

According to the board, Canada could enter recession in the third quarter if the Alberta government tightens its oil production curtailment to provide relief for struggling oil and gas companies. 

COVID-19 impact

The conference board acknowledges there are huge risks to its outlook due to COVID-19 but that a gradual recovery of the pandemic is expected to take place — which in turn will heal the global economy.

Until that happens, the hit to Canadian oil and gas producers will be hard as prices fall below US$30 per barrel. 

The report expects this will recover to US$53 per barrel in 2021 as the impacts of COVID-19 dissipate and that oilsands investment resurfaces.

"The urge to expand and increase production volumes just won't be there until the climate improves. But with Alberta's production cap still above its 2019 level on a year-over-year basis, and with more pipeline capacity, there is room to grow," read the report.

Many Canadians likely think the closing of shops, curtailing of travel and other emergency actions will result in a deeper recession than the conference board is forecasting followed by a recovery, said Anish Chopra, managing director with Portfolio Management Corp.

"Given the stimulus that's in the economy … there's certainly a chance that we have a strong recovery coming out of this but it's hard to pinpoint exactly when and that really depends on just how long the coronavirus lasts," she said.

The board expects the Canadian job market will face a modest downturn as 138,000 jobs will be created for the year, down from 391,000 last year.

However, it expects the temporary nature of the coronavirus will prompt most firms to do their best to retain workers to be in a position to resume growth later in the year.

"While industries such as those related to travel, large events or the oil industry will see substantial declines in employment growth in the second quarter, we expect the losses in most other industries to be minimal."