Page 36 - Flathead Beacon // 8.31.16

BUSINESS MONTHLY
Friends in Low Places
Drop in oil prices, huge wild re act as double punch to northern neighbor Alberta’s economy
BY MOLLY PRIDDY OF THE BEACON
It’s been a rough year for Montana’s neighbors to the north in Alberta, where the shuddering economy and the over- whelming force of natural disaster have combined to hit the province hard.
The provincial government released its rst quarter update for the 2016-2017 scal year, showing massive impact from the Fort McMurray res within the oil economy, deepening the budget de cit to $10.4 billion.
The New Democratic Party of Can- ada (NDP), with Premier Rachel Notley at the helm, took control of the provin- cial government in 2015, breaking the 44-year streak of the Progressive Con- servative Association of Alberta. At that point, Alberta was already headed into an economic tailspin due to decreases in oil prices starting in 2014.
Since the Canadian dollar is tied directly to commodities, the loonie also lost value when compared to the Amer- ican dollar, adding extra pressure to the Canadian markets. Then the Fort McMurray wild re exploded onto the scene this May, burning more than 1.5 million acres and destroying 2,400 homes and buildings. The re is still burning.
While the re was devastating to the communities it touched, the ripples expanded. The NDP reported the re drastically reduced oil-sands production in Alberta, to the tune of about half a bil- lion dollars.
All told, the province expects to reap about $1.4 billion in revenue from non-renewable resources, the lowest in 40 years. For comparison, the actual revenue brought in from non-renewable resources during the 2014-2015 year was about $8.9 billion.
“The whole economy of Canada is a resource economy,” Patrick Bar- key, director at the University of Mon- tana’s Bureau of Business and Economic Research, said. “It’s not the rst bust, but
Oil sands development in Northern Alberta. SHUTTERSTOCK
it’s a pretty tough bust for them up there in Alberta.”
On Aug. 25, Alberta’s seasonally adjusted unemployment rate was 8.6 percent in July, a huge jump from the 6.2 percent reported this time last year and higher than June’s 7.9 percent.
This is a problem, Barkey said, because Alberta has acted as the economic safety zone for many in Canada, where people moved from all over the country to get jobs in the oil elds or in the bustling and booming cities of Calgary and Edmonton.
“Alberta’s been the mini-China of North America for a while there,” Barkey said of the province’s energy production. “It’s just all in reverse, and that’s a huge problem. Their politics are even changing as a result.”
Donna Townley, an economist with the University of Lethbridge, said the NDP’s new policies, such as increased taxes and royalties for oil companies, are part of the pressure being exerted on the economy.
Along with the increased taxes, the NDP added a $40 monthly carbon tax on all natural gas bills, which will go into e ect on Jan. 1. Townley said the Leth- bridge city government already has plans to pass that new cost on to the ratepay- ers. The NDP is also increasing minimum wage in increments, up to $15. This, plus the weak dollar, is increasing the cost of doing business.
“Alberta has survived oil prices in the past and we could survive it again, but they’re kicking us while we’re down,” Townley said. “It’s not a rosy picture up here right now.”
Low oil prices a ect many facets of the economy, from housing and retail activity to manufacturing and construction. The Alberta economy is expected to contract another 2.7 percent in 2016 – the e ects of the Fort McMurray re account for 0.6 percent of that – after it declined 3.7 per- cent last year. Those are the two worst back-to-back economic years since the 1980s.
Barkey said the woes of Alberta de - nitely seep into the Montana economy.
“You can see it here in Missoula,” he said. “There have been facilities here built to stage megaloads (headed to the oil sands). You’ve got to have the longer view.”
Other a ected industries will include transportation, fabrication work, and many of the other support services built around energy production. Barkey said Canadian oil out ts would send equip- ment to be xed in America instead of paying to replace it, for example, and such transactions are slowing.
Economic ups and downs, especially for markets tied to commodities, are par for the course, Barkey said, and in the long run, Alberta will bounce back.
“Oil is a global commodity. They go up and down. It’s always the same thing,” Barkey said. “You have to take a longer view; there’s a gigantic commitment to developing these resources.”
mpriddy@ atheadbeacon.com
MEET BRITTA JOY Technology Account Manager • Desire to help customers save money with efficient solutions
• Extensive product knowledge of Sharp Multifunction Printers and AQUOS interactive presentation boards
• Personalized training to t your individual office needs
Powered by People.
J2OP.COM
Business Products
36
AUGUST 31, 2016 // FLATHEADBEACON.COM