Alberta economy will see recession before 'modest recovery' by 2016: ATB

ATB Financial is forecasting that Alberta's economy will contract in 2015a more pessimistic view than in early July when the bank said the province would likely avoid a recession this year.

"After five consecutive years of exceptionally strong growth, it now appears certain that Alberta's economy will contract in 2015," ATB wrote in its fourth-quarter outlook released Thursday.

ATB anticipates modest growth of close to 1.4 per cent in 2016, aftera contraction of 0.7 per cent of Alberta's real GDP in 2015, according to the bank'sfourth quarter economic outlook.

That compares with real GDP growth of around fourper cent in 2014, when oil and gas prices were much higher.

ATB says the drop in oilis the "single reason" for the economic challenges, as prices have fallen to about US$45 a barrel at present from more than US$100 in the summer of 2014.

The drop in oil prices has caused energy companies to drastically cut costs, leading to further job losses as well as reductions in both wages and overtime hours.

ATB is predictingthe unemployment rate will rise to 5.9 per cent this year, up from 4.7 per cent last year, before improving slightly to 5.7 per cent next year.

The report noted thatcontinuedEurozonenervousness and instability in the Chinese stock markets took the price of oil below $US 38 per barrel at the end of August.Oil prices are expected to remain low and volatile.

"While still unstable, prices are likely to trade around $US 45-50 per barrel for the remainder of the year. A moderate increase to $US 55-60 is forecasted for mid-to-late 2016," the reportadded.

Alberta's agriculture sector was also hit by dry weather,which led to disappointing results for crop production in theprovince's second largest sector.

Brighter note

On the positive side, the report notedforestry remains in decent shape,supported by strong prices for lumber, a resurgent U.S. economy and a low Canadian dollar.

Cattle prices remained solid and hog prices experienced a bit of a rebound.

Residential construction and retail trade werestableover the first three quarters of 2015.

For the economy to recover, the bank says oil prices would need to rebound at least a little, labour costs would have to rebalance and sectors outside the energy industry such as agriculture, forestry and tourism need to see strong performances.

As well, the Canadian dollar needs to stay low to help exporters.