Alberta feels the pinch of slumping commodity prices – by Josh Wingrove, Barrie McKenna and Nathan Vanderklippe (Globe and Mail – December 20, 2012)

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Edmonton, Ottawa and Calgary — Oil-rich Alberta is dialling back its budget forecasts, saying that slumping commodity prices could mean belt-tightening, bigger deficits, broken election pledges and a slower national economic recovery.

The warning Wednesday from Finance Minister Doug Horner is the latest signal that Canada’s economy will not turn around as swiftly as governments across the country had hoped. British Columbia, Saskatchewan and the federal government have pulled back on revenue projections in recent weeks because of sluggish growth and low commodity prices, particularly in oil and gas.

Mr. Horner blamed the gap between the price of Alberta’s oil and the North American benchmark. Alberta’s typically sells at a discount, one that has widened lately. “I’m very, very concerned about where those numbers are headed,” Mr. Horner said, adding the province needs new export pipelines to reach new buyers and fetch the higher price.

Any commodity downturn is felt most strongly in the west, but provincial forecasts across Canada are being revised as the U.S. economy remains sluggish and energy prices slump.

“They [the provinces] are looking at less revenue growth and having to cut expenditures to meet deficit targets,” Royal Bank of Canada assistant chief economist Paul Ferley said.

Any long-term slump in energy prices would take a big bite out of the national economy, Mr. Horner warned. As the resource-rich west is stumbling, outlooks have improved slightly for Ontario and Quebec – in October, Ontario announced its deficit was smaller than expected, and Quebec’s new government hopes to balance its budget for 2013-2014.

Saskatchewan is the only province forecasting a balanced budget this year. Alberta, the only debt-free province, expects to draw down its rainy day sustainability fund by about $3-billion to cover this year’s ballooning deficit. Mr. Horner is expected to present Alberta’s next budget in two months, and he warned on Wednesday he would have to back away from some commitments, and every ministry – even Health and Education – could be affected.

Observers warn austerity is self-limiting. In a recent report, Toronto-Dominion Bank economist Sonya Gulati said public spending restraint is a drain on economic growth in a majority of provinces – the first time that has happened since the 1990s. The big danger ahead for the economies of most provinces is the so-called “fiscal cliff” in the United States.

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