What can we expect? A look back at previous recessions in Alberta
The recession currently facing Alberta is expected to be deeper than the one facing the country as a whole.
By ATB Economics 31 March 2020 2 min read
There’s a lot we simply don’t know when it comes to how COVID-19 and the oil price war will affect Alberta’s economy, but there’s broad agreement that a significant recession is in the works. Even though it seems like we’ve been going through this for a long time already, it’s still too early to accurately forecast the length or the depth of the downturn other than to say it could potentially be one of the worst in recent memory.
The phrase “we are in uncharted territory” is particularly apt at the moment. Nonetheless, past recessions can still give us some context for what’s heading our way.
A recession is often defined as two consecutive quarters of contraction in real GDP. However, the two quarter time frame is not hard and fast and there are no official estimates of provincial GDP by quarter. So when it comes to tracking recessions in Alberta, we tend to look at changes in annual GDP.
When we do this, we find that there have been four recessionary periods in Alberta since 1981. The provincial economy contracted two years in a row back in 1982 and 1983 for a total drop in output of 3.0 per cent. The economy shrank by 2.8 per cent in 1986, but didn’t shrink again until 2009 when the global financial crisis brought on a 5.5 per cent drop. The fourth recession took place in 2015 and 2016 when 7.0 per cent of economic output was erased over two very difficult years.
The recession currently facing Alberta is expected to be deeper than the one facing the country as a whole because of our heavy dependence on oil production. The drop in oil demand in the wake of COVID-19 combined with a price war between Saudi Arabia and Russia that could extend well beyond the epidemic are a one-two punch threatening to bring the Alberta economy to its knees. The Canadian economy will also feel Alberta’s pain, but the blow will be concentrated in the oil-producing provinces.
The different situation faced by Alberta is highlighted by the fact that the oil price crash that pushed Alberta into a deep recession in 2015 and 2016 slowed the national economy, but didn’t drag it down into an outright recession. (The national economy grew by just 0.6 per cent in 2015 and 0.8 per cent in 2016).
When we get the data needed to accurately assess the economic disruption brought on by the effort to contain COVID-19, it’s likely going to be “one for the record books.”
Here in Alberta, past recessions tell us we’ve successfully weathered some pretty bad economic storms. Unfortunately, many Albertans haven’t fully recovered from the last one.
A note on COVID-19: The COVID-19 pandemic is having a major impact on the economy here in Alberta and around the world. The Owl will report on these impacts when good information is available while continuing to track regularly scheduled releases of economic data and long-term trends.