Alberta is poised to suffer the largest economic decline in Canada this year — and the most severe that the province has ever seen in a single year, according to a new forecast from RBC Economics.

It says the collapse in oil prices has been a "massive blow" for oil-producing regions of the country, including Alberta. Oil companies have slashed their spending plans and trimmed production, the report says.

"The slump will spill over to other sectors of the economy, further weakening consumer spending and business investment," according to the report released this week.

"We now project Alberta's economic contraction — at -5.6 per cent — to be the most severe the province has ever experienced in a single year and the largest in Canada."

As the report notes, Alberta had not fully recovered from the previous collapse in 2014-16. The latest slump in prices will drastically reduce cash flows in the energy sector and slice government royalty revenues.

"Saskatchewan and Newfoundland and Labrador won't fare much better with contractions of -4.0 per cent and -3.2 per cent, respectively," the report says.

All provincial economies expected to contract

The bank also says every provincial economy will contract substantially this year as none will be immune to the COVID-19 shock.

"The shock will hit every province no matter how many infection cases each has," the report says.

Periods of economic contraction typically include increases in unemployment rates, and many businesses are laying off people as the pandemic impedes economic activity.

RBC expects Alberta's unemployment rate to climb to 11.5 per cent in 2020 and average 10.5 per cent in 2021.

The province's oil industry has been hit by a combination of an oil price war between Saudi Arabia and Russia, tumultuous stock markets and COVID-19.

Coronavirus and oil price war both at play

Companies have already sliced billions of dollars in capital spending, and a new report this week expects deep production cuts could soon follow.

Rystad Energy, a Norway-based energy research firm, says the impact of the coronavirus pandemic and the price war has created such a large global supply surplus that Western Canada's oil production will need to be cut by some 11 per cent, or 440,000 barrels per day (bpd).

The country is days away from running out of available storage capacity, it said.

"Western Canada's storage infrastructure has a generally accepted maximum storage capacity of approximately 40 million barrels," Rystad said.

"Based on our calculations, more than 30 million barrels of crude oil and diluted bitumen is already held in storage, and the volume is likely to edge towards the high end of capacity by the end of March under current production assumptions."

On Wednesday, federal Finance Minister Bill Morneau said help for the oil and gas sector isn't far away, adding one of Ottawa's aims is to ensure that small- and medium-size firms have the credit facilities they need.