Low oil prices yet another chance for Canada to fix productivity gap

Tonight's first order of business: a harsh reality for Albertans as the price of oil continues to fall. It could be the wake-up call that province has needed for years.

Canada as a whole has a productivity problem, which means our wealth is actually declining. For years we've understood it to be partly driven by a combination of easy money made on resources, and an easy trade partner next door. Both kept us from being as lean and efficient as we could be. Well, it seems that is even more true in Alberta with its citizens and government now looking at 'low for long' applying to oil prices. 

Will they heed the alarm? 

— Amanda Lang

The price of oil continued its steep slump today, hitting a fresh five-year low. West Texas Intermediate closed at 66.59 a barrel Friday — down 37 per cent since June. Pressure on the price mounted yesterday, when the oil cartel OPEC decided not to cut production levels to relieve the supply glut.

That tumbling price is of course a nice break for drivers across the country, including manufacturers shipping goods. Gas prices are expected to slip below $1 a litre as early as this weekend (and already has in a few cities). That would be the lowest price at the pump in five years.

There is another effect, though, on this nation's economy. And it's potentially a brutal one, especially for Canada's energy hub. Alberta's Premier Jim Prentice says plummeting oil prices should be something all Albertans worry about, since producers may start halting projects and pulling investment.

It has been tough for Alberta to justify jumping off the oil train. Revenue from the oil patch makes up a quarter of the province's total revenue. Because of that, the resource-rich province has expanded faster than the Canada's overall economy in all but one of the last 10 years. This year, Alberta is expected to notch 4.4 per cent growth — about double the second-strongest province. But each drop of just $1 per barrel can mean $200 million less in provincial revenue. Do the math, and a $40 drop since June adds up to an $8-billion difference.

Alberta's oil-dependent economy faces another problem. While its labour productivity is high compared to other provinces, second only to Newfoundland and Labrador, the growth of that productivity has lagged over the last 15 years. And while productivity is strongest in the energy sector, the shrinking fortunes of that industry mean other parts of the economy will need to pick up the productivity slack.

Amanda Lang discussed the topic of productivity in Alberta with Mark Parsons, the acting chief economist with Alberta Treasury and Finance on Friday's episode of The Exchange.