Special to The Globe and Mail
Published Sunday, Jan. 03, 2016
To say Alberta’s economy was interesting last year isn’t quite right. Terrifying is a better descriptor for some. For others, it’s been that eerie sense of déjà vu. But as the Vegas bookies know, terror and repetition are all part of the thrill of gambling.
How is 2016 shaping up for Canada’s beleaguered energy juggernaut? What does it mean for those anxious Albertans watching the roulette wheel spin? Here are some events worth watching this year, and the odds against them.
Oil hitting $100 (U.S.) a barrel: odds, 100 to 1
It’s improbable, but there is a story line that would see oil prices rocket their way back to triple digits. It involves such terrible violence and terror in the Middle East, however, that it’s unseemly to describe it. It would also take a surge in growth from China, India and other emerging economies, as well as social and infrastructure collapse in Venezuela and Nigeria – two Organization of Petroleum Exporting Countries that are straining under the cartel’s supply policy and low price.
Oil hitting $20 a barrel: odds, 20 to 1
This too is possible, and in fact the chances of it happening are better than most Albertans would care to dwell on. This scenario would require a near collapse of China’s economy. At this point, that isn’t very likely, but Shanghai’s stock market showed frightening volatility last summer and the government devalued its currency in a surprise move to stabilize the economy. Anything is possible this year in China.
Unemployment hitting 10 per cent: odds, 15 to 1
It’s been over 22 years since Alberta has seen double-digit unemployment. Going into 2016, the province’s jobless rate sits at 7 per cent. Job losses have been concentrated in the oil patch and those industries indirectly related (such as engineering and service providers to oil producers). But other sectors of the economy are still doing well, and they’ll find some nice juicy résumés coming through the door. That should keep unemployment from skyrocketing to double-digits.
Alberta, a leader in renewable energy: odds, 4 to 1
This isn’t as improbable as some Alberta-bashers out there wish it to be. There’s more to Wild Rose Country than oil, and 2016 could present the proper conditions to see some of that diversity flourish. Alberta is already a leader in wind power, and great potential lies with solar and geothermal. The problem with a lot of it is that when oil prices are strong, the petroleum sector draws in a lot of labour, capital and even office space. That’s now reversing. As well, the provincial government is looking for ways to both diversify the economy and encourage renewable energy.
Out-migration from Alberta: odds, 2 to 1
This is a familiar trend in Alberta when the economy periodically hits the skids. It’s also one of the best reasons for being part of a national economy that allows labour mobility. Interprovincial in-migration over the past five years was essential for employers in Alberta that were looking for workers. Now that the tides have turned, there’s a good chance some will leave. Preventing a massive outflow, however, is the fact that the job market isn’t much better elsewhere in the country (British Columbia being the one exception).
Economic contraction: odds, 1 to 1
Downturns like last year’s aren’t uncommon in Alberta, and in fact the last recession in 2009 was much deeper (albeit short-lived). This time around, the contraction is likely to linger on for a while, with both 2015 and 2016 forecast to see some drop in the real gross domestic product. At this point, growth should be so close to zero that it’s a flip of the coin whether the province will see another year of sliding backward.
And then, for the real gamblers, there are the black swan events:
After a nice lunch with Prime Minister Justin Trudeau, President Barack Obama has a change of heart on Keystone XL: odds, 10,000 to 1.
A meteor of pure gold hits Alberta, bringing $10-billion (Canadian) in royalties to the province: odds, 100,000 to 1.
A sales tax: odds, 1,000,000 to 1.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.