TORONTO (miningweekly.com) – While the ominous risk of a recession can not be dismissed, analysts at Royal Bank of Canada (RBC) believe that the initial position of strength in the Alberta economy is likely sufficient to keep the province in slightly positive growth territory in 2015, despite the dramatic decline in oil prices since June.

In its March ‘Provincial Outlook’ report, the bank expected real gross domestic product (GDP) growth in Alberta, “albeit at an anaemic pace of 0.6%".

“With growth so weak, the risk of a technical recession cannot be dismissed,” analysts said.

The persistence of energy sector weakness and an unfolding spill over into confidence prompted RBC to revise its forecast for 2015 real GDP growth significantly lower to 0.6% from 2.8% in its December outlook.

However, a modest recovery in energy prices in the latter half of the year should stem further deterioration in confidence and support improved performance in 2016, when the analysts expected real growth would pick up slightly to 1.1%.

West Texas Intermediate oil on Thursday traded at $47.08/bl.

FIRMS IN FIRING LINE
The bank reported that Alberta’s energy industry’s widespread capital spending cutbacks since late last year highlighted the direct hit that the low oil price environment would have on investment in the province this year.

The Canadian Association of Petroleum Producers foresaw a 33% decline in short-term capital spending in Western Canada, with oil sands investment set to fall by 24% to a four-year low of $25-billion.

Accounting for one-quarter of Alberta’s economic activity, the sharp drop in nonresidential business investment was expected to cut more than 1.5% directly off real economic growth in 2015. The lingering price uncertainty was also expected to have an unambiguously negative effect on drilling activity in the province, despite producers being expected to continue to churn out nonconventional production as an increasing number of new and expanded projects came on line.

RBC said the strong job creation of recent years in the province was likely to stall in the face of the layoffs energy firms had recently announced.

“The province’s labour markets have not yet shown signs of cracking, although weaker employment prospects are reducing the incentives for prospective workers to relocate to the province from other regions of the country.

“The number of people coming to Alberta from across Canada plunged in the third quarter of 2014, thereby reducing the annual flow of provincial migrants by the greatest amount since 2009. Any sustained weakness of this magnitude will inevitably result in a substantial slowing in Alberta’s population growth in 2015 and, in turn, will weigh on what has been firm underlying consumer demand in the province,” the report said.

RBC advised that the shaken confidence in Alberta was most evident in the potential boom-bust scenario that was currently playing out in the province’s housing markets. A cumulative 35% plunge in existing home sales in December and January, was accompanied by the inventory of homes on the market surging to the highest level since 2008.

“With little to bolster near-term confidence, we anticipate sharply lower resale activity overall this year, thereby setting the stage for some price declines. Sharp deterioration in fiscal conditions could also have ripple effects on household confidence in 2015,” RBC said.

Alberta Premier Jim Prentice had cautioned that a period of “fiscal restraint” was imminent and revenue boosting initiatives (including tax hikes) were likely to accompany significant programme spending cuts as the province dealt with an estimated looming $7-billion budget shortfall in fiscal year 2015/16.

While RBC’s GDP growth forecast pointed to a dimmed outlook for Alberta and, to a lesser extent, Newfoundland and Labrador and Saskatchewan on one side, the bank also expected brighter prospects than previously anticipated for Ontario, British Columbia, Quebec, and most of the other oil-consuming provinces, on the other.