Low oil prices will have differing effect on Canada’s regions

According to a new Conference Board of Canada report, Canada’s economy will suffer from the shock of tumbling oil prices this year, especially from a sharp reduction in energy investment. The report estimated that Canada’s economy will suffer a 0.4% hit to growth this year. Lower oil prices will have sharply differing effects across regions and industries.

Pedro Antunes, Deputy Chief Economist, The Conference Board of Canada, said: “While there are both winners and loser in the Canadian economy as a result of weaker oil prices, we expect the overall Canadian economy will see a modest net loss in growth this year”.

The report projects that world oil prices will recover to above the US$60 mark by the end of the year – but this still represents a 40% decline in crude oil prices in 2015.

Canada growth is expected to remain in the 2% range in 2015, in line with its tepid performance in recent years. Oil revenue losses will be partly offset by lower transportation costs and a boost in consumer spending from the drop in gasoline prices.

Indirectly, exporters may also benefit as lower oil prices help lift the economic fortunes of the US, a key trading partner, but this benefit will take longer to be felt and be weaker than in the past.

The economic outlook for oil producing regions such as Alberta, Saskatchewan, and Newfoundland and Labrador has been significantly affected. Not surprisingly, Alberta will experience the largest drop in real GDP as it is by far Canada’s largest oil producer. In fact, the province could slip into recession in 2015. Saskatchewan and Newfoundland and Labrador will also be hurt, but not to the same degree as Alberta, because oil extraction is not as large a share of total provincial activity.

Alternatively, Ontario and Quebec will benefit the most from weaker oil prices. A combination of stronger US economic growth and the weaker Canadian dollar will boost demand for export from these provinces. However, the positive impact on Ontario and Quebec exporters will be limited by the fact that these provinces currently lack the industrial capacity to take full advantage of the anticipated increase in demand for exports over the near term. Higher investment spending will be required to boost capacity and thereby enable Ontario and Quebec to take full advantage of the weaker loonie and strong US growth.

Adapted from a press release by Emma McAleavey.

Published on 22/01/2015

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