Alberta’s economic slowdown: nowhere to go but up
Numbers show lots of evidence of the tough economic conditions facing Alberta, but with an increasingly diversified economy, we do think the worst is behind us
by Michael Ganley
We don’t mean to offer false hope. As we were putting together the Venture 250 list of Alberta’s biggest companies, we talked about a theme. The numbers showed lots of evidence of the tough economic conditions facing the province: revenues, profits and employee counts are all down. The bad news has seeped into every aspect of life, from rising unemployment levels to stagnant real estate markets to stressed credit for businesses and individuals.
But, at the same time, there is evidence that we are at the bottom of the cycle, that there’s nowhere to go but up. The price of oil is well above the lows of a year ago and most predictions are for it to continue to rise in the medium term, an inevitable consequence of the steep declines in exploration and development. Most predictions for the price of oil suggest $50 or $55 by the end of the year, and investors are preparing for another stretch of high energy prices. That puts a floor under the Albertan economy.
And we’ve begun to see the inevitable wave of mergers and acquisitions that happens in the oil and gas sector at the bottom of every bust, as players with a strong cash position take advantage of the financially stressed and snap up assets. Suncor (#3 on the list, with revenue of $30 billion) is a perfect example. It went on a buying spree and, while its revenues fell, it has emerged from the crash stronger than ever and expects to boost production to 800,000 barrels per day in 2019 from less than 600,000 in 2015.
When considering how bad things have gotten compared to how bad they might have been, it’s important to note that Alberta’s economy is considerably more diverse now than it was in the 1980s, when the province last went through such a tough stretch. Many companies on the Venture 250 list in tech, financial services, manufacturing and construction had strong years. That means the economy hasn’t been hit as hard as it otherwise would have been, and we haven’t seen the exodus of people leaving the province that we did in the 1980s. It may seem like small consolation if you’ve just lost your job, but the increasing diversity of the economy is a good thing, and it’s a lot easier to build when the price of oil is low and other sectors of the economy aren’t competing with the oil sands behemoth.
In the end, we settled on A New Hope as the theme. Some trailing indicators (like unemployment levels) may get worse yet, but we do think the darkest days are behind us. We just hope history doesn’t record us as putting lipstick on a pig.