It’s too soon to gauge how badly the Canadian economy will be hit by its tumbling crude discount, but the oil patch may need to brace for layoffs in the new year, according to  ATB Financial’s chief economist.

“We haven’t seen a lot of layoffs this time, but I think it’s because what’s happened in the last four [or] five months, is still fairly recent,” Todd Hirsch, chief economist at ATB Financial, told BNN Bloomberg in an interview Monday.

“We could well see layoffs in early 2019 and it could spawn yet another – if not a recession – at least another slowdown for the Canadian economy, certainly in Alberta’s economy.”

Western Canadian Select crude – which has been mired below US$20 for much of the last two weeks – was down 69 U.S. cents to trade at US$16.74 as of 11 a.m. ET on Monday.

Cenovus CEO calling for drilling restrictions

BNN Bloomberg speaks with Cenovus CEO Alex Pourbaix about his call on the Alberta government to mandate cuts to oil production in the province to alleviate the oil pipeline bottleneck.

The widening discount to West Texas Intermediate crude – currently at US$39.49 – coupled with a lack of pipeline export capacity has prompted many in Canada’s energy sector to call for action. Last week Cenovus Inc. Chief Executive Alex Pourbaix said Alberta should introduce a production cap on the province’s oil producers.

Hirsch said it would be tough to get producers of varying capacities on-side with such an idea.

“When you look at the variety of different oil producers in Canada, there are the large integrated ones – the ones that are still making money on the refining side – they’re a little more able to withstand these low prices,” Hirsch said. “And, in some ways, they have some, maybe, interest in keeping prices low. It makes it a little harder on their competitors.”

“You’re not going to have a unanimous position within the energy sector itself about whether withholding production is a good idea or not, and I think it’s that lack of unanimity on that, that is going to be the sticking point.”

Kurt Reiman, BlackRock’s chief investment strategist, told BNN Bloomberg last week that he expects the Canadian crude discount to narrow within a year and said the energy market is close to reaching its bottom.

However, Hirsch said that it’s too soon to assess the potential damage to both the energy industry and the Canadian economy.

“The situation has changed so quickly and so dramatically that it’s kind of hard to get a feel for exactly what’s going on and how long this is going to last,” he said.

“This is a national problem. With the collapse in that Western Canadian [Select] price and the situation we find ourselves in, it’s not great, at least not in the short run.”