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CALGARY — Even under the most favourable assumptions, Alberta separation would shrink the province’s economy and reduce employment during the first five years, while a difficult split from Canada could trigger a severe recession and leave the economy significantly smaller for decades, according to an independent University of Calgary analysis.
The September report, The Economic and Fiscal Implications of Alberta Separation, was commissioned by the Government of Alberta to examine the potential economic and fiscal risks and benefits of separation. The University of Calgary’s School of Public Policy says the analysis was conducted independently and neither advocates for nor opposes Alberta leaving Canada.
The analysis focuses specifically on economic and fiscal consequences. Legal, constitutional, political and social issues are not examined comprehensively, although researchers consider them where they could materially affect economic or fiscal outcomes.
The report also cautions there is no single outcome that can be predicted with certainty. Alberta’s economic position following separation would depend on future negotiations, policy choices, international conditions and decisions made by Canada, the United States and other governments and institutions.
Researchers therefore modelled two scenarios intended to show a range of potential outcomes.
Even in the smooth scenario, where negotiations are co-operative, trade continues largely uninterrupted and Alberta gains greater freedom to expand its energy sector, inflation-adjusted GDP would be 2.2 per cent lower than it otherwise would have been during the first five years after separation.
Employment would be 0.7 per cent lower over that period.
The report attributes the short-term contraction partly to higher interest rates, which would increase borrowing costs for households and businesses and reduce consumption and investment.
The difficult scenario is considerably more severe.
Researchers estimate GDP could be 10.1 per cent lower than it otherwise would have been within five years of separation, while employment could fall 10 per cent at the recession’s peak.
If everyone who lost a job remained in Alberta and continued looking for work, the unemployment rate could rise by 10 percentage points. Researchers note some displaced workers would likely leave Alberta, which could reduce the actual increase in unemployment.
The economic damage in the difficult scenario would continue well beyond the transition period.
More than 20 years after separation, GDP could remain 16.2 per cent below where it otherwise would have been, while employment could remain 4.7 per cent lower.
The difficult scenario assumes Alberta faces higher costs taking over federal responsibilities, substantially higher interest rates and more expensive trade with the rest of Canada. It also assumes the province has fewer options for exporting its energy and becomes more dependent on the United States.
Researchers model a situation in which the U.S. could use Alberta’s lack of alternative export routes to negotiate lower prices for its oil, further reducing revenues to producers and government.
Even the smooth scenario requires a series of favourable outcomes.
It assumes Alberta and Canada quickly reach comprehensive agreements, trade with Canada and international markets continues with minimal disruption, interest rates eventually return to lower levels and a supportive U.S. government allows the energy sector to expand.
Only over the longer term does that scenario produce economic gains, with GDP estimated at 3.4 per cent above where it otherwise would have been after roughly 20 years and employment 0.7 per cent higher.
The School of Public Policy says the wide difference between the scenarios reflects how heavily the outcome would depend on circumstances Alberta could not control, including negotiations with Canada, international recognition, investor confidence, access to export markets, interest rates and global oil prices.
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