The worst of the economic downturn could soon be over for Alberta's energy sector, according to the chief economist at ATB Financial.
There are signs the province will rebound enough to see modest growth by the second half of 2016, Todd Hirsch said on the Calgary Eyeopener Monday ahead of his address to the 2016 Economic Outlook presented by Calgary Economic Development and ATB Financial at the BMO Centre.
"So that's the good news, the bad news is that's still probably eight to 12 months away, so we do have a bit of a slog here to get through," he said.
Bank of Canada governor Stephen Poloz also spoke at the event — his first public speaking engagement in the city — along with Conference Board of Canada chief economist Glen Hodgson.
Hirsch say a number of things need to happen in order for his cautiously rosy forecast to come true.
- The price of a barrel of West Texas Intermediate (WTI) needs to get up to $60 and stay there.
- Alberta's non-energy sectors of agriculture, forestry and tourism need to do well next year.
- The Canadian dollar needs to stay low against the U.S. dollar.
"We're going to need that Canadian dollar to hang in there about where it's at — around 75 cents — or even a little bit weaker. It's just the right sort of elixir that the province needs, and the country in fact, to kind of boost the value of our exports."
Hirsch told the Calgary business audience he expects there will be more layoffs in the energy sector before Christmas and Alberta's unemployment rate could reach seven per cent early next year before the jobs situation improves.
One of the keys to the recovery of Alberta's energy sector will be a sort of reality check, Hirsch says. His presentation was titled "Losing balance, regaining control."
"We have to remember only 11 years ago $45 was a record high, and that was 2004. It seemed to be raining cash on the province then," he said on the Eyeopener.
"But what's happened since then is cost escalation, especially with labour costs. They have really ballooned over the last 10 years."
Hirsch noted while Canadian average weekly earnings increased 29 per cent over the last decade, earnings for Alberta oil and gas employees went up 56 per cent.
"This is why the industry is in this bad spot, because they've just spent the last five years desperately trying to attract people," he said.
"And they've had to back up the money truck, and you know, every second Friday off, and all these nice things, to get them. And now they're in danger of losing them."
Government not to blame
Hirsch says it's too early to lay the blame for Alberta's economic woes at the feet of the new NDP government.
"It has only to do with one single thing, and that is the price of oil," he said.
"Now I guess time will be the judge, if policies being put into place now end up being wise or not…. But right now the situation is entirely due to oil prices and not anything to do with the new government in Alberta."
With the Bank of Canada's key interest rate sitting at 0.5 per cent, another rate cut would not be very helpful, Hirsch says.
He says the central bank's main role is to keep the currency stable and keep inflation low.
"What the Bank of Canada can do, and I think this is what governor Poloz will do this afternoon, is provide maybe a little bit of psychological cheerleading," he said.