The top economic stories in 2020 and the impact on Alberta’s economy
By ATB Financial 18 December 2020 7 min read
Our economics and research team looks into five of the biggest economic news stories of 2020 and provides insight into how they’ve shaped Alberta’s economy. The full list, along with other observations about the year that was, is discussed in the latest episode of ATB’s The Future Of podcast hosted by our Chief Economist Todd Hirsch and featuring insights from energy guru Jackie Forrest and ATB’s Managing Director of Economics Rob Roach.
First up is the ongoing saga known as Brexit. Brexit (a combination of “British” and “exit”) refers to the withdrawal of the United Kingdom from the European Union on January 31, 2020. Brexit also means that the U.K. will no longer be a party to Canada’s free trade agreement with the E.U. as of January 1, 2021.
A transition period during which the U.K. remains in both the E.U. customs union and single market expires on December 31, 2020. The idea behind the transition period was to give the parties time to hammer out a deal that would preserve at least some elements of free trade between them and address other issues such as how to manage the land border between Ireland and Northern Ireland.
As we approach the deadline, there is a strong possibility that the negotiations will break down and result in a “no-deal” Brexit.
As an economy highly dependent on open global trade, Brexit—especially a “no deal” version—is not good news for Alberta as it is part of a rising tide of trade protectionism and parochialism that threatens the economic growth associated with the free movement of goods and services across borders.
On the bright side, Canada and the U.K. have inked the Canada-U.K. Trade Continuity Agreement. Global Affairs Canada describes the agreement as “an interim deal that will be in place as Canada and the United Kingdom work towards negotiating a comprehensive free trade agreement.”
2. The oil price war between Saudi Arabia and Russia
Second only to the pandemic in terms of its negative effect on the Alberta economy in 2020 is the oil price war between Saudi Arabia and Russia.
Back in January 2020, before COVID was a household word, the U.S. Energy Information Administration’s (EIA) forecast for the average price of a barrel of West Texas Intermediate (WTI) crude in 2020 was $US59. As of December 8, the EIA expects the 2020 average to come in just under $39. The price averaged $57 in 2019.
The demand destruction brought on by the pandemic is the main reason for the difference, but bad blood between Saudi Arabia and Russia sent painful shockwaves through oil patches around the world, including here in Alberta.
The trouble began in early March. Most observers assumed OPEC and Russia would leave meetings in Vienna with a deal that would shore up oil prices in the face of COVID-19. Not only was no agreement reached on a supply cut, Saudi Arabia and Russia both announced they would be increasing production and the price war was underway.
The war officially ended on April 12 when OPEC and Russia agreed to the largest coordinated oil production cut in history. But the damage was done.
The pandemic, the extra supply pumped into the market during the price war, limited global storage and bad timing saw WTI close at negative $37.63 per barrel on April 20.
Prices rebounded on the back of voluntary supply cuts and market-driven production shut-ins.
As a result, things are much better than they were in the spring but the damage inflicted by the pandemic and the price war, combined with prices that are still languishing below $50 a barrel, means that Alberta’s oil patch still has a lot of healing to do.
3. China as a source of important economic news
China has become, and will continue to be, a source of important economic news. From a trade war with the United States to its rapid economic recovery in the face of COVID to the signing of the The Regional Comprehensive Economic Partnership (RCEP), China continues to make large economic waves with ripple effects felt around the world, including Alberta.
Some of us might remember when the big economic player and newsmaker in Asia was Japan. China was barely on the radar.
Fast forward to today, and even though Japan is still the third largest economy in the world, China has emerged as both a regional and global economic power locked in a prolonged battle with the United States for global economic dominance.
When it comes to Canada, our relationship with China is complicated.
On the one hand, the Chinese market represents a massive opportunity for Canadian exporters and, as China solidifies its role in the global economy, it makes sense for Canada to be on China’s good side.
On the other hand, China presents a long list of challenges that include human rights issues, tensions with our largest trading partner, the banning of Canadian canola (the ban has been lifted but it remains a red flag), security concerns related to 5G network technology, the detention of Canadians Michael Kovrig and Michael Spavor and the arrest of Huawei executive Meng Wanzhou.
One thing is clear, China’s role in the world is evolving, growing and—regardless of how well we do or do not navigate the tricky waters ahead—will have a large impact on Alberta’s economy going forward.
4. The U.S. election
Notwithstanding the many American citizens who live in Canada, most of us cannot vote in U.S. elections. And yet, we pay attention to them as much or more than we do our own—at least when the presidency is on the line. The U.S. is, after all, our neighbour, largest trading partner, military ally, main source of tourists and the winter landing spot for many snowbirds from Canada.
The recent race between President Donald Trump and former Vice President Joe Biden for what is arguably the most powerful elected position in the world was particularly gripping.
What does a Biden-Harris presidency mean for Alberta’s economy? As with so many other things at the moment, it’s hard to say for sure.
Biden is on the record saying he will kill the Keystone XL project, a 1,947 km pipeline that would deliver up to 830,000 barrels per day of crude oil from Alberta to Nebraska and, from there, the U.S. Gulf Coast. In the season one finale episode of The Future Of, Jackie Forrest, Executive Director at ARC Energy Research Institute says that even if the Keystone pipeline is not built, there are still advantages for the oil and gas industry in Canada and we have other projects progressing to get our product to market.
Election promises aren’t always kept and the new administration might have other more pressing priorities, but it remains a dark cloud over our ability to get our main product to market.
However, it’s been argued that a Biden presidency focused on addressing climate change south of the border could help level the playing field between Canadian and American energy producers. This, of course, could cut both ways.
Whatever happens, change is afoot with a new presidency officially beginning on January 20.
5. The COVID-19 pandemic
The negative economic effects of the pandemic were initially underestimated. COVID-19 was seen by many as a short-term disruption that would be over almost as soon as it began. If only.
Once it was clear the pandemic would be with us for some time, the negative economic effects were overestimated with talk of another Great Depression making headlines.
The economic pain is plenty bad enough but, between government spending, public health measures, working from home (for those who can) and the underlying resiliency of our economic system, we have managed to avoid economic collapse.
In what is surely one of the greatest scientific achievements of all time in terms of the speed at which it has happened, we now have what appear to be several effective COVID-19 vaccines that—if things go as expected—will put an end to the pandemic.
The question now is how long will this take?
It would be fantastic if the pandemic would disappear along with 2020 when clocks strike midnight on January 1. Unfortunately, even the most optimistic estimates suggest that it will take months before we achieve herd immunity needed for things to get back to normal.
In the meantime, it is hoped that the vaccination of high-risk groups will take some of the pressure off the health system and bring down the mortality rate.
When our economy and economies around the world will be free from the dampening effects of the pandemic is beyond the ken of the economics team but there is good reason to hope that a successful vaccination roll-out will put COVID in the rearview mirror before the end of next year.