Over five years ago now, March 11, 2013, I published this mayo615 blog post on the Alberta bitumen bubble, and the budgetary problems facing Alberta Premier Alison Redford, and the federal Finance Minister Jim Flaherty at that time, both of whom were surprisingly candid about the prospect for ongoing long-term budgetary problems for both the Alberta and Canadian national economies. Fast forward five years to today and the situation has essentially worsened dramatically. The current Alberta Premier Rachel Notley is facing another massive budget deficit, just as Alison Redford predicted years ago, and was forced to call a new election. My most glaring observation is that despite years of rhetoric and arm-waving, almost nothing has changed. Meanwhile, the Canadian economy is on the precipice of a predicted global economic downturn which could easily become a global financial contagion.
OTTAWA – The International Monetary Fund has cut its growth outlook for the Canadian economy…
One day after federal Finance Minister Joe Oliver deflected concerns over Canada’s poor economic showing to start 2015, the OECD announced that it now projects Canadian growth this year at about 1.5 percent, down sharply from 2.2 percent during its previous temperature reading in March and a full percentage point below its forecast last November. Oliver on Tuesday told a Parliamentary Committee that he does not anticipate a recession.
Underscoring Goldman Sachs forecast last week of oil prices at or below $50 per bbl until at least 2020, Bloomberg News is today reporting that Iraq is preparing to unleash a flood of new oil within the next few months. This is very bad news for the price of Western Canadian Select bitumen, and Alberta oil sands producers. Saudi Arabia’s strategy, together with OPEC, to squeeze high-cost oil producers of oil sands and shale seems to be working. More pessimistic forecasts of WCS at $25 for an extended period now appear more plausible.
The evidence of a Canadian economic train wreck just keep rolling in. This report from CNN Money mentions last week’s Bank of Canada dismal report on the Canadian economy, and goes on to add additional economic data and comment from respected investment banks around the World. The one glaring omission is any political discussion of how Canada got into this mess, and who is responsible for it.
Imagine if Canada was implementing environmental policies like those proposed by one of its own, author & filmmaker Naomi Klein. What if Canada were to restore its historical image as a progressive country leading the World with its policies? In the following video published on the UK Guardian website, Ms. Klein argues that making policy moves now to increase investment in renewable energy make sense, while oil prices are at very low levels, and likely to remain low for the longer term.
Over two years ago now, March 11, 2013, I published this mayo615 blog post on the Alberta bitumen bubble, and the budgetary problems facing Alberta and the federal Finance Minister Jim Flaherty at that time, both of whom were surprisingly candid about the prospect for for ongoing long term budgetary problems for both the Alberta and Canadian national economies. Fast forward two years to today, and the situation has essentially worsened dramatically. The most glaring difference in my mind is that there is no Jim Flaherty, and there is no candid talk coming from the current Finance Minister, Joe Oliver, or anyone in the Harper government, on this issue or when a budget may be expected.
The Bank of Canada’s Spring 2015 Business Outlook Survey (link to complete report below) released this week, gives more reason for serious concern regarding the economic prospects for all Canada, and the widening impact of Canada’s “natural resource curse”: it’s fossil fuel based economy. The report points to a significant increase in business pessimism about the economy as a whole, well beyond the oil economy, which is causing business to significantly reduce plans for capital spending and hiring. As I pointed out previously, the impact of the oil economy collapse is likely to reverberate throughout the Okanagan. The BofC report suggests that the impacts will be even deeper and more diverse.
Norway’s Government Pension Fund Global (GPFG), worth $850bn (£556bn) and founded on the nation’s oil and gas wealth, revealed a total of 114 companies had been dumped on environmental and climate grounds in its first report on responsible investing, released on Thursday. The companies divested also include tar sands producers, cement makers and gold miners.
As part of a fast-growing campaign, over $50bn in fossil fuel company stocks have been divested by 180 organisations on the basis that their business models are incompatible with the pledge by the world’s governments to tackle global warming. But the GPFG is the highest profile institution to divest to date.
The growing downturn in the fossil fuels industry has extraordinary implications globally. While some are proposing theories that this downturn will be short-lived, there simply isn’t much evidence to support an optimistic forecast. Saudi Arabia is openly executing a long term strategy to squeeze “high cost oil producers,” using its unquestioned leverage and the lowest production costs in the World. Europe is facing potential deflation, and the current European recession is forcing the European Central Bank to begin “quantitative easing,” beginning this week, essentially printing money. The Russian economy is in shambles as the ruble weakens, something Putin did not plan on occurring. The Chinese economy has weakened sharply and will likely remain weak into the near foreseeable future. Meanwhile Canada is at the mercy of these global forces, with little in the way of economic reserves to defend its economy, having bet the entire Canadian economy on oil.