The Alberta government announced on Friday that it’s deficit has dropped by $1.3 billion since its Budget 2018. But new economic headwinds pose a challenge for the province’s recovery if left unchecked.

The government said there is a $500-million “risk adjustment remaining in place to protect against price volatility” on crude oil.

In releasing its second quarter fiscal update, the province said the deficit is now forecast to be $7.5 billion.

“The Alberta economy continues its second year of recovery with 42,000 jobs created. The deficit continues its decline and we are on track to balance in 2023-24,” said Finance Minister Joe Ceci in a statement.

“But our recovery is at risk due to the punishing (oil price) differential. This is a crisis. Albertans and working Canadians cannot afford to leave $80 million on the table every day. It doesn’t make sense and, if the differential is not addressed, our entire country could be plunged into a downturn. This is a national issue and it’s time Ottawa stepped up and pitched in.”   

The government said inadequate pipeline capacity and inaction by the federal government on crude oil delivery by rail has led to a widening differential. The decline in the price of Western Canadian Select (WCS) over the past months has weighed on Alberta’s economic outlook, it added.

“We’re fighting for the Albertans who are struggling because of the punishing differential. We’re going to keep pressing the federal government. And if they won’t act, we will,” said Ceci.

Robert Kavcic, senior economist with BMO Capital Markets, said the moderate improvement in the province’s deficit is not a surprise. But the province sees some clouds forming as it lowered its 2019 real gross domestic product growth forecast to 2.0 per cent from 2.5 per cent.

“The oil production growth profile could fade given voluntary cutbacks (but remain positive), while capital spending plans are being ratcheted down (looking flat in 2019). Meantime, consumer confidence is getting hit by news in the oil sector, with spillover effects on retail and housing. We see growth slowing to 1.6 per cent next year from 2.4 per cent in 2018,” he said.

“Long-term debt issuance has been reduced alongside the lower deficit, now at $14.4 billion, down $1 billion from the budget – $11 billion has already been completed.”

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