Alberta’s economy is likely going to get worse before it gets better, says the chief economist of regional financial services group ATB Financial.

“It is probably going to be another eight to 12 months of pretty tough sledding for Albertans,” Todd Hirsch said during a news conference Thursday announcing the bank’s fourth-quarter outlook.

The latest outlook sees Alberta in a recession for 2015 with a 0.7% contraction of real GDP, a more pessimistic view than in early July when the bank expected growth of 0.4% for the year. That compares with real GDP growth of 4.4% in 2014, when oil and gas prices were much higher.

“Unfortunately the economic situation in Alberta has darkened from our last forecast,” said Hirsch.

ATB says the drop in oil prices is the “single reason” for the economic challenges as prices have fallen to about US$45 a barrel at present from more than US$100 in the summer of 2014. Prices were hovering around US$60 when ATB made its last forecast in July.

Hirsch expects the economy to get out of its slump in the second half of 2016 and post modest growth of 1.4% for the year. Meanwhile, over the fall and into the new year could be the “roughest patch” for Albertans and the province’s economy as severance packages and savings run out.

ATB is predicting that the unemployment rate will rise to 5.9% this year from 4.7% last year before improving slightly to 5.7% next year.

“We are going to see a higher level of unemployment and that does present a lot of challenges for a lot of Albertans and there is going to be some hardship,” Hirsch said.

The bank says it expects the North American benchmark price for oil to trade around US$45 to US$50 a barrel for the rest of 2015, rising only moderately to between US$55 to US$60 by mid-to-late 2016.

Indicators outside the oil and gas industry have shown more stability, with the bank saying residential construction was solid, retail and wholesale trade has stabilized and manufacturing has levelled off.

But the Calgary Real Estate Board said Thursday that its unadjusted benchmark housing price dropped 0.26% in September compared with last year. It blamed rising unemployment and persistent weakness in the local economy for the impact on housing demand.

The ATB report says that agriculture, the Alberta’s second-largest sector, had disappointing crop production this year due to drought in some parts of the province, while forestry remains in good shape thanks to strong prices for lumber.

For the economy to recover, Hirsch says oil prices would need to rebound to around US$60 a barrel, labour costs would have to rebalance and sectors outside the energy industry such as agriculture, forestry and tourism need to see strong performances. As well, the Canadian dollar needs to stay low to help exporters.