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Money Alberta's economic outlook sours amid a credit downgrade, muted energy spending

11:15  05 december  2019
11:15  05 december  2019 Source:   financialpost.com

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Share this story. Alberta ' s economic outlook sours amid a credit downgrade Suncor Energy Inc. noted that the Alberta ’ s government’s production limits factored into its capital spending plans for 2020. Husky Energy Inc. also plans to scale back spending by 0 million over the next two years.

Concerns about credit ratings may be one reason why Robertson has appeared reluctant to loosen the purse strings further amid calls for the government to step up fiscal stimulus. A positive outlook indicates about a one-in-three chance of the credit rating being upgraded over the next two years.

a train on a track with smoke coming out of it: The Imperial Oil Strathcona Refinery is seen at sunrise in Edmonton. Imperial is planning to trim spending in 2020.© Ian Kucerak/Postmedia News files The Imperial Oil Strathcona Refinery is seen at sunrise in Edmonton. Imperial is planning to trim spending in 2020.

CALGARY — A credit downgrade and mixed outlook for oil and gas spending next year raise questions about Alberta’s economy heading into 2020, but economists are still predicting a modest recovery for the oil-producing province.

“The environment around investment is still really not that great,” Conference Board of Canada chief economist Pedro Antunes said Wednesday. The Conference Board’s forecast of 2.4 per cent real GDP growth next year followed by 3.1 per cent growth in 2021 was “prudent,” Antunes said.

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Alberta ' s credit rating has been downgraded by Moody's, with the agency citing the volatility in the The province's rating was downgraded to Aa2 stable from Aa1 negative on Tuesday. The agency's rating stated that continued spending cuts will be needed for the government to balance the budget

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Antunes was in Edmonton Wednesday to meet with other private sector economists and Alberta Treasury Board and Finance Minister Travis Toews about the provincial outlook a day after the province’s credit rating was downgraded and amid mixed signals from oil companies about spending next year.

Moody’s Investors Service Inc. cut Alberta’s credit rating a full notch to Aa2 with a stable trend on Tuesday because of “structural weakness in the provincial economy that remains concentrated and dependent on non-renewable resources” and a lack of export pipeline capacity.

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The Alberta government’ s credit rating has been downgraded by an agency that cited the province’ s reliance on oil revenue and what it calls its high environmental risk. Moody’ s Investors Service has adjusted the province’ s rating to Aa2 stable from Aa1 negative. The rating service cites weakness in

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Toews said in a release he was “disappointed” by the downgrade but blamed the move on the previous NDP government’s spending and the continued lack of new pipelines.

This fall, Toews tabled an austerity budget that included a 3 per cent reduction in operating spending, a move which he said would enable to province to table a balanced budget by 2023. “I stand behind our government’s plan and I am confident it is the right path forward for Alberta and for all Albertans,” Toews said following the credit downgrade.

Since Alberta’s government will be under pressure not to reduce front-line services in the midst of austerity and there will be political incentives to spend money, Moody’s said “the government’s fiscal projections are subject to material execution risk.”

Conference Board’s Antunes said that private-sector energy investment in Alberta has fallen each year from a peak of $60 billion before oil prices crashed in 2014 to hit $25.5 billion in 2019. In the next five years, he expects those levels to inch back up to $30 billion on average.

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Meanwhile, there have been rebounds in spending in other sectors of the economy including manufacturing and petrochemicals and among some major oil producers.

Alberta’s two largest oil producing companies, Suncor Energy Inc. and Canadian Natural Resources Ltd., announced increased capital spending next year when they released their budgets for 2020 before markets opened on Wednesday.

Suncor Energy Inc. noted that the Alberta’s government’s production limits factored into its capital spending plans for 2020. The company is planning to spend between $5.4 billion and $6 billion next year, a range that reflects whether or not the provincial government lifts its oil curtailment order because the company will spend more without the production limits. However, Suncor noted that it’s keeping spending on oil-related projects flat.

CNRL, which supported curtailment last year, is planning to spend $4.05 billion in 2020, which president Tim McKay said in a release represents an increase in planned spending of $250 million compared with last year and drill in an additional 60 locations “due to the Alberta government’s recently announced elimination of curtailment for conventional drilling.”

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"The downgrade reflects our assessment of Alberta ' s now-average economic prospects resulting from low oil prices; projected weak budgetary performances in The move ends years of top-rated credit for the energy -producing province as a string of budget surpluses, booming economic activity and low

Credit ratings agencies recently downgraded bonds issued by IDBI Bank and Reliance Communications, seriously impacting their stock prices. How to anticipate a downgrade “If the rating outlook is negative, typically the ratings are likely to be downgraded further,” says Srinivasan.

However, as other oil companies have released their budgets for 2020, the overall outlook for spending in the energy sector remains muted with other companies such as Imperial Oil Ltd. trimming spending.

Imperial president and CEO Rich Kruger said Thursday that his company’s capital plan is set “a bit over a sustaining capital level.”

“It’s not betting on banking on material improvements in the near term in market access or economic conditions,” Kruger said, adding the company had the potential to spend more money to invest and grow in the future.

Husky Energy Inc. also plans to scale back spending by $500 million over the next two years.

Given concerns about curtailment, slow progress on pipeline projects and oil prices, economists and analysts see a number of risks to investment and economic growth in the province.

TD Economics estimated that Alberta’s economy, which posted anaemic real GDP growth of 0.7 per cent in 2019, is set to grow by 1.7 per cent next year and 1.9 per cent the year after.

TD noted that “the improvement is only modest in scope” and that “the province’s economy is set to essentially tread water this year” given a lack of new export pipelines and the continued presence of limits on what large oil producing companies can pump.

The bank also predicted that Alberta’s unemployment rate would rise from an annual average of 7 per cent in 2019 to 7.1 per cent next year before falling to 6.5 per cent in 2021.

Financial Post

• Email: gmorgan@nationalpost.com | Twitter: geoffreymorgan

Jason Kenney heads to London to promote Alberta's energy to international markets .
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