The screeching halt in oil-related spending has raised widespread concern about how badly it will hurt Canada’s economy. But in Calgary, Canada’s oil capital, it hasn’t sunk in — yet — that the oil boom is over.
Restaurants and bars are full, private jets charters are in demand, expensive cars are still big sellers and the Calgary Stampede is banking on the usual level of corporate support. To be sure, it’s not all normal — notoriously expensive parking is easier to find, taxis are not as busy and non-profit groups are worried about their fund raising events.
But the city’s mood is certainly a long way from the dark days of global financial downturn in 2009, when malls were empty; or post the 1980 National Energy Program, when the real estate market was so depressed scores of Calgarians walked away from their homes.
The transition from a super-charged economy to one having to absorb the sudden oil shock has been so quick that decisions made in the executive suites have yet to hit home.
Most know there will be consequences from the oil crash in the next 12 months, but so far lower oil has put more money in Albertans’ pockets, said Kyle Murray, professor of marketing at the University of Alberta’s school of business.
“It’s much too early,” Mr. Murray said. “Most of us haven’t had a pay cut, we haven’t lost that many jobs, we haven’t seen large-scale freezes or big increases in taxes or cuts in services. In fact, the things that have changed right away are mortgage rates are falling and gas that is cheaper, and so far the impact of the so-called crash is it costs us less to live. But that is not likely to last.”
At Teatro, a fine dining establishment in downtown Calgary favoured by the oil crowd, there is concern about corporate spending cuts, but so far “our lunches are busier than ever,” and major events are moving ahead, said Diana Ellison, operations manager for Teatro Restaurant Group.
Adam Legge, president and CEO of the Calgary Chamber of Commerce, said most of the city’s small businesses “have not experienced much in the way of business impacts yet,” though they are putting plans in place to be ready as the effects trickle through the economy.
The relative calm may have something to do with plenty of experience dealing with commodity price cycles — and a sense that the latest downturn is temporary.
“In Alberta we have all seen this before,” Mr. Legge said. “Many businesses are approaching 2015 with caution, avoiding outlaying unnecessary capital, delaying equipment purchases or working to get the most out of current staff levels rather than increasing their workforce. To be clear, we are taking about prudence, not panic.”
As of last week, oil and gas producers were expected to cut spending in Western Canada by 33%, to $46 billion, from $69 billion in 2014, according to the Canadian Association of Petroleum Producers. Many also cut dividends and warned about staff cuts. The Bank of Canada has reduced its growth forecast for the coming year to 2.1%, from 2.4%.
The investment pullback is expected to go deeper if oil prices slide further, or if they stay at today’s levels for an extended period. Cenovus Energy Inc. announced a further $700-million cut Wednesday to its already-reduced capital budget for 2015.
from Finacial Post Claudia Cattaneo | January 28, 2015
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