To get a larger picture of how political changes in the States will affect the Alberta energy industry and economy, the Ponoka and District Chamber of Commerce listened to an informative presentation during their general meeting on Feb. 16.
ATB vice president and chief economist Todd Hirsch spoke to members via Zoom, explaining the ‘butterfly effect’ of events in America on Alberta and giving a financial forecast for 2021.
“Economists were constantly updating our predictions (in 2020),” said Hirsch.
The term ‘butterfly-effect’ describes how events can have a ripple effect.
Hirsch says that one such event was the run-off election with two vacant senate seats in Georgia back in January.
This clinched the election for President Joe Biden, and Biden then cancelled the Keystone XL Pipeline on his inauguration day, Hirsch explained.
“This project has been on again off again for 15 years … one should be sincerely surprised by this,” he said.
If we step back and take a broader view of the Biden administration, Hirsch says we can see more positives for Alberta than negatives.
During Trump’s administration, regulations around fracking and shale oil shipping were eased, which led to a “bonanza” in the states, he says.
“The playing field was very uneven between Canada and the United States.”
Biden plans on tightening up restrictions, which will allow Canada to compete.
“In the broader view, I believe there are more positives than negatives for our energy, because of Biden.”
In 2021, a ‘K’ shaped recession is being predicted, says Hirsch.
It’s predicted the economy will be down in the second quarter, stabilizing in the third and fourth, but in 2021, the broader economy will reopen and that will lead to a recovery for some workers, such as professional occupations and higher income earners.
Stats Canada estimates only 20 to 25 per cent have the kind of job where they can work from home. They were able to stay employed throughout the economy and they will enjoy continued job security when the economy reopens.
He says there will also be a distinct non-recovery for others, such as those in the service sector, that are either part-time, low skill set, lower income or rely on government income supports.
Hirsch says these jobs may fail to recover.
“It could be quite desperate for some of them,” he said.
“I would suggest that every one of us in Alberta, and every one of us in Canada, needs to pay attention to what is happening here in Canada.”
He predicts a widening of income disparity and opportunity that will only continue to grow post-COVID.
The gap isn’t as wide here in Alberta as it is in the U.S. or the U.K., but it is growing, he says.
Hirsch questions whether income supports are really the best we can come up with, here in the 21st century.
“I would submit there is not an easy off-the shelf solution but as Canadians, we need to brace ourselves.”
According to Hirsch, there are four aspects to the economy:
- The top level, the market economy or private sector (tech, financial markets, resources extraction, real estate, etc.).
- The second layer, the non-market economy of public sector (infrastructure, education, roads, public transportation, arts and culture, health care, parks, fire, police).
- The third aspect, the most over-looked or neglected, is the social economy, (community, family, friends, volunteerism, public health and mental wellness, faith communities, charity and social organizations), and,
- The fourth and last aspect, the natural environment — the earth — (air, freshwater resources, oceans, soils, forests, land use, carbon sinks, pollution).
What is good for one is not necessarily good for another, so we need to think about harmonizing the layers of the economy, rather than balancing them, says Hirsch.
When it comes to debates about economic priorities, the market tends to be at the top, however Hirsch says for a stable economy, the environment must be considered.
“There is an order of foundation that we need to pay attention to when it comes to debating policy.”
Forecast for 2021
Growth will resume with vaccine roll out but timing and coverage are questions.
He estimates there will be a broad reopening of the economy by September, but it could possibly be closer to the end of 2021 or into 2022.
The jobless rate is going to remain high as businesses that were shutdown do not reopen.
The energy sector will remain stable and may even grow a little, but will remain at a low level.
We are now back to pre-COVID oil rates, he says.
The economy is going to continue to evolve and adapt post-COVID.
Sectors that have the most opportunity for growth are the tech sector, agriculture, particularly agri-foods and diversified crops, and renewable energy and clean energy technologies.
The first wind farms are almost 30 years old, but geothermal and hydrogen production are still in their infancy, he says.
“Here we’re using technology to address some of our challenges in our carbon-energy industry,” he said.
In Hirsch’s opinion carbon taxes should be seen as opportunities rather than penalties.
Globally, supply chains weren’t affected as much by COVID as was feared at first.
Even though the top-side earners will be spending more extravagantly post-COVID, there aren’t enough of them to have a large trickle-down effect, he says.
Chamber president Barry Grant asked how interest rates will be affected in 2021.
“The Bank of Canada is going to keep interest rates low for a long time, and they have repeated that,” said Hirsch.
The exception to that could be, if later in 2021, there is a coordinated reopening of the global economy. That could create some building inflation pressures and interest rates could rise in early in 2022, but more likely they will rise by late 2022.
The Canadian dollar has been strengthening in the last few months, but it’s really due to a lower U.S. dollar and we can maybe expect it to appreciate a little bit more.