The collapse in oil prices will push Newfoundland and Labrador, and potentially Alberta into recession this year, according to a new report from BMO Economics.
Economist Sal Guatieri said he believes Canada’s economy contracted in the first quarter of this year after posting three per cent average growth in the previous three quarters. The technical definition of a recession is two consecutive quarters of negative GDP.
“We estimate that the plunge in crude prices will slow growth by one-half percentage point this year, hammering the three oil-rich provinces the hardest.” he wrote.
“Facing severe fiscal restraint, Newfoundland and Labrador will slip into recession, and Alberta will do well to avoid one. Saskatchewan’s growth is expected to slow to one per cent, the weakest since the recession.”
Oil prices have started to rebound after falling early this year to half of what they were last summer. The slip has hit oilsands jobs hard, with some experts predicting Alberta will lose nearly 32,000 jobs by the end of the year.
Home prices in Calgary, Edmonton, Regina and St. John’s have been falling as the real estate market in those oil-dependent cities cools.
The first quarter was likely the low point for the Canadian economy, Guatieri said, adding he expects growth to rebound to two per cent for the rest of the year and advance slightly faster in 2016.
“Oil prices have bounced roughly 40 per cent from their lows, while the U.S. economy is poised to strengthen. As the global oil glut evaporates in the face of less drilling and more driving, prices (WTI) should average $65 per barrel next year, up from around $59 recently and a low of $44 in mid-March,” he said.
“This should cushion the downturn in oil-producing regions.”
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