Regular readers know that we've covered Alberta's decline at length (refresher here), so there is no need to give much of a backstory other than to say that the situation seems to get worse for the Canadian province as each day passes, even as oil has rebounded in the past two months.
Toronto's "Condo King" Brad Lamb tried to put things into context when he said the situation is "worse than 2008." However, on Friday we received an even more gloomy (albeit realistic) description of the economic situation in Canada's energy hub, Alberta. In a very blunt interview with BNN, Murray Mullen the CEO of trucking company Mullen Group, said that the situation has moved well past recession, and should be described as a depression.
"Well, if you're involved in the oil patch directly, drilling activity or anything like that I think we've gone beyond recession and it's more a depression. The facts are that this latest round of commodity price collapse that happened the first part of this year I think really put the nail in the coffin for the industry."
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"The damage has already been done basically for this year. Even though it seems like the oil price and even natural gas is starting to recover, there was no room for error because commodity prices had fallen so low in 2015, and then when it happened in 2016, and it's not just crude oil, it's natural gas also. We're just kind of trapped in a difficult market dynamic that we haven't seen in probably most of our lifetimes."
"There's no investment activity going on below $40, it just goes to zero."
The fact that Mr. Mullen categorized the situation as a depression isn't surprising to us: after all that's how we characterized the economic reality in Alberta for the first time last December in "This Is Canada's Depression"
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And while we wait for yet another local shoe to drop (and after soaring crime, surging suicides, and overwhelmed food banks, one wonders just what could be next), we continue to be on the lookout for the number of future bankruptcies that emerge from this space (as he alluded to numerous times throughout his interview). Recall that as we first reported, Canada's banks have virtually zero reserves for a worst case scenario.
When the already shaking Calgary domino finally falls, that's when the Bank of Canada will have no choice but to make good on its threat from last year and unleash negative interest rates.
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Moments ago, Bloomberg reported that Moody's has downgraded Alberta's credit rating.
• Moody’s says the province will need to increase direct borrowing in order to finance operating deficits for first time in over 20 years
• Moody’s expects Alberta’s net direct and indirect debt to increase to nearly 17 percent of GDP in 2018-19 from 7 percent in 2015-16
• Outlook negative
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