Alberta's economic decline will be the 'most severe' the province has ever seen: RBC

Alberta is poised to suffer the largest economic decline in Canada this yearandthemost severe that the province has ever seenin a single year, according to a new forecast from RBC Economics.

It says the collapse in oil prices has been a "massive blow"for oil-producing regions of the country, including Alberta. Oil companies have slashed their spending plans and trimmedproduction, the report says.

"The slump will spill over to other sectors of the economy, further weakening consumer spending and business investment," according to the report released this week.

"We now project Alberta's economic contraction at -5.6 per cent to be the most severe the province has ever experienced in a single year and the largest in Canada."

As the report notes, Alberta had not fully recovered from the previous collapse in 2014-16. The latest slump in prices will drastically reduce cash flows in the energy sector and slice government royalty revenues.

"Saskatchewan and Newfoundland and Labrador won't fare much better with contractions of -4.0 per centand -3.2 per cent, respectively," the report says.

All provincial economiesexpected to contract

The bank also says every provincial economywill contract substantially this year as none will be immune to the COVID-19 shock.

"The shock will hit every province no matter how many infection cases each has," the report says.

Periods of economic contraction typically includeincreases in unemployment rates, and many businesses are laying off people as the pandemic impedeseconomic activity.

RBC expects Alberta's unemployment rate to climb to 11.5 per cent in 2020 and average 10.5 per cent in 2021.

The province's oil industryhas been hit by a combination of anoil price war between Saudi Arabia and Russia,tumultuous stockmarketsand COVID-19.

Coronavirus and oil price war both at play

Companies have already slicedbillions of dollars in capital spending, and a new report this week expects deep production cuts couldsoon follow.

Rystad Energy, a Norway-based energy research firm, says the impact of the coronavirus pandemic and the price war hascreated such a large global supply surplus that Western Canada's oil production will need to be cutby some 11 per cent, or 440,000 barrels per day (bpd).

The country is days away from running out of available storage capacity,it said.

"Western Canada's storage infrastructure has a generally accepted maximum storage capacity of approximately 40 million barrels," Rystadsaid.

"Based on our calculations, more than 30 million barrels of crude oil and diluted bitumen is already held in storage, and the volume is likely to edge towards the high end of capacity by the end of March under current production assumptions."

On Wednesday,federal Finance Minister Bill Morneausaid help for theoil and gas sector isn't far away, adding one of Ottawa's aims is to ensure that small- and medium-size firms have the credit facilities they need.