Canada’s Western tigers take a tumble

But which province has it worse—B.C. or Alberta?

Thunk. Alberta, which had been racking up budget surpluses in every year since 1993—the year Bill Clinton was inaugurated—just announced a whopping, $1-billion deficit for 2008-2009. This follows fast on B.C.’s $495-million deficit announcement—its first since Premier Gordon Campbell’s 2001 law promising balanced budgets. So now, as Canada’s Western tigers stumble, economists consider which province is better positioned to weather the global recession.

In one corner: Alberta, where plunging oil prices have taken a bite out of provincial revenues. The provincial economy is expected to shrink by two per cent this year and more than 15,000 jobs will be lost. In fact, Alberta—which has led the country in job growth for the past several years—is expecting unemployment to jump from 3.6 to 5.8 per cent in 2009. Market meltdowns, meanwhile, have reduced its $16-billion rainy-day, Heritage Savings Trust Fund by nearly $3 billion. (To temporarily plug the budget gap, Alberta has been forced to begin draining its $7-billion “sustainability fund,” a provincial contingency fund; the spectre of public sector job cuts and tax increases, however, are already being raised.)

In the other corner: B.C., which shed a record 68,000 full-time jobs in January alone. B.C. suffers from the same rapid implosion of commodity prices—in lumber, minerals and metals, as well as oil and gas. There, growth is expected to contract to 0.9 per cent this year—less, by half, than Alberta. But contractions in sectors like mining and forestry—which has all but disappeared—could be far worse than government forecasts, warn economists. Unemployment, meanwhile, which recently hit 6.1 per cent, is up from an all-time low of 3.8 per cent last March. And nearly one in ten jobs in B.C.—where building permits are drying up at a faster rate than the national average—is tied to the construction industry. (Already, the ripple effect of slowing construction has begun hitting suppliers of lumber, drywall, flooring, machinery, windows, cement, wiring and paint.)

Still, there is “no question” B.C. is better positioned to face the coming storm, says Niels Veldhuis, chief economist of the Fraser Institute. Alberta will be “harder hit,” because the province is “much more exposed to the energy sector,” the primary driver of the its economy, says James Brander, professor of International Trade at the Sauder School of Business at UBC. With its hands in oil, gas, mining, forestry, fisheries, manufacturing, high-tech, bio-tech and filmmaking, not only is the B.C. economy more diversified, but its government has been “very prudent, over the past three to four years,” at reigning in public sector spending, says Veldhuis.

Alberta, in stark contrast, has done a “very poor job.” There, spending increases, which hit 10 per cent in each of the past two years, following huge increases during the final Klein years, have been “astronomical,” says Veldhuis. (Program spending increased 174 per cent, from $10 to $30 billion, between 1995-1996 and 2007-2008.) B.C. is also the only province in Canada that exports, substantially, to Asia, adds Brander. (Indeed, 53 per cent of its exports ship to the U.S., compared with 80 per cent for the rest of the country.) Bad news considering that Japan, B.C.’s second-largest buyer, declined by 3.3 per cent in the last fiscal quarter—twice or more the pace of either the U.S. or Europe. “A lot will depend on what happens to commodities prices,” says Veldhuis. “If we see an up-tick in energy prices in 2010, the downturn in Alberta will be short-lived.” That, however, requires peering into a crystal ball, says Brander. One thing is certain, he says: This is going to be a very ugly quarter, for both B.C. and Alberta.