While the human tragedy of war in Ukraine cannot be understated, the invasion is having “an enormous effect” on the Alberta economy, Hirsch said, during the 2022 ATB Business Summit in May. The impact is primarily due to the province sharing similar commodity bases as Russia and Ukraine – energy and agriculture.

“The U.S. (West Texas Intermediate) WTI benchmark oil price trading above US$110 per barrel, without question, has been a benefit for our oil and natural gas producers,” he said.

From US$68 per barrel in late December, to a high of US$116/bbl in early March, about 50% of the increase in global energy prices in 2022 can be attributed to the invasion of Ukraine and the embargoes imposed on Russia. ATB’s quarterly economic forecast issued in May predicts a five-percent increase in gross domestic product this year, primarily on the higher commodity prices. Hirsch cautioned that while revenues have climbed, there is little confidence prices will be sustained, affecting companies’ abilities to commit funds for long-term capital projects.

Strong energy prices aren’t the only economic drivers for Alberta, as “agriculture commodities, particularly wheat and canola prices, are strong now because of the crisis,” Hirsch added. The supply disruption has opened opportunities for Canadian wheat and canola farmers to get into markets they haven’t participated in previously, he noted.

Grain and oilseed prices have surged in 2022 as the crisis in Ukraine –the fifth-largest global exporter of wheat and supplier of 44%of Europe’s canola demand – continues along with subsequent disruptions at its export ports. Ukrainian wheat exports dropped in half, 643,000 tonnes of grain at the beginning of May from 1.8 million tonnes a year prior, according to the country’s agriculture ministry.

Inflation putting the brakes on recovery

Inflation represents the single biggest risk to the global economy, Hirsch said. Most economists, himself included, expected the world was entering a five to 10-year period of deflation, based on what were expected to be soft energy prices. Flat to negative growth was initially expected into 2025 because of supply disruptions and economic slowdowns due to the pandemic.

But Canada’s annual rate of inflation hit 6.7 in April, a 31-year high, surging on higher energy and commodity prices following Russia’s invasion of Ukraine. The pace of consumer price growth had already accelerated this year, prompting the Bank of Canada to start hiking interest rates in an effort to slow inflation. After being near zero for almost two years in an effort to support a pandemic-battered economy, the central bank’s benchmark rate now is expected to reach 2 percent by year-end.

Hirsch noted the Bank of Canada and other central banks were criticized for delaying a response to inflation, which started rising in fall of 2021. But Canada was in the throes of a new wave of COVID and new lockdowns during October and November. To increase interest rates at that time would have received huge consumer and business backlash, he said. As well, inflation was seen as transitory, mainly due to pandemic-related supply chain disruptions.

The biggest risk for the national economy now is a recession, Hirsch said. “If the central bank can get the timing right on rate hikes, we have a good chance that will slow down the Canadian economy, keeping a lid on inflation without pushing us back to a recession.”