LOW OIL HURTS CANADA
The savings consumers now enjoy at the pump are offset by the impact on the overall economy,
The collapse in the world price of crude oil will put $1,000 in the average Canadian consumer’s pocket this year thanks to lower gasoline prices at the pumps, a new report notes.
But it won’t be enough to boost the overall economy, the Conference Board of Canada said in its quarterly outlook, released Monday.
Economic growth in Canada will slow by a “substantial” 0.5 percentage points to 1.9 per cent in 2015, the board said, down from its previous forecast of 2.4 per cent in November.
Canadian oil producers will be hardest hit, losing an estimated $40 billion (U.S.) in revenues this year, taking a toll on business investment and corporate profits, the board said.
“Even before the drop in oil prices, we were projecting a small dip in overall business investment due to soft growth in domestic consumer demand.
“Now, the sharp decline in energyrelated profits will force oil companies to pull back their capital budgets,” said Matthew Stewart, the board’s associate director of the national forecast.
The pain will be particularly severe in Alberta and Newfoundland and Labrador and to a lesser degree, Saskatchewan, the report notes.
However, Canada’s trade sector, centred largely in Ontario and Quebec, will benefit from the combination of a stronger U.S. economy and weaker Canadian dollar, the board said.
The report was one of several issued Monday that attempted to quantify the future impact of a 55per-cent drop in the world price of crude oil since June 2014 — even as oil prices advanced for the third day in a row.
West Texas Intermediate crude oil for March delivery rose $1.17 U.S. a barrel to $52.86 on the New York Mercantile Exchange, as producers cut supply to more closely match slowing global demand.
The Canadian dollar, closely tied to the price of oil, closed up 0.37 of a cent (U.S.) at 80.22 cents.
In a separate report, CIBC World Markets predicts unemployment in oil-rich Alberta will climb to 6.8 per cent from the current 4.3 per cent.
That, in turn, will lead to a drop in disposable income in the province of 0.5 of a percentage point to-1-per cent, deputy chief economist Benjamin Tal wrote in a research note
Alberta has the country’s highest debt-to-income ratio, due to the large number of young families who
“Before the drop in oil prices, we were projecting a small dip in overall business investment.”
MATTHEW STEWART
CONFERENCE BOARD OF CANADA
have moved there and borrowed to buy houses, Tal said.
However, falling interest rates will help limit the damage from rising unemployment, he wrote.
The Bank of Canada unexpectedly cut its benchmark rate by a quarter of a per cent in January to 0.75 per cent, citing concerns about the impact of falling oil prices on Canada’s economy.
The market is expecting another quarter-point cut in the trend-setting rate in March, Tal wrote.
Meanwhile, Canada’s manufacturing sector is facing a “cocktail of positive factors,” including rising productivity, a lower dollar and a stronger U.S. economy, Tal noted.
That will translate into higher profits for those firms and eventually increased investment in equipment to boost capacity, Tal wrote.
However, Canadian companies will be hard-pressed to compete with U.S. manufacturers in emerging markets, where young and sophisticated consumers want global brands, Tal noted.
Canadian companies’ second-best option will be to integrate their operations with global supply chains, Tal said. Tal expects the Canadian dollar to remain around 80 cents (U.S.).
The Organization of Petroleum Exporting Countries said non-OPEC supply growth in 2015 will be 850,000 barrels a day, down 420,000 barrels from the previous forecast, led by a reduction of130,000 barrels a day in the U.S.
Market watchers are split in their views on whether the price of oils has bottomed out. The Conference Board expects oil to recover to $60 (U.S.) a barrel by year end.
In a sharply negative take on the recent upturn, Citigroup said in a report Monday the surge in oil prices is just a “head-fake” as oil could fall as low as $20 a barrel “for awhile.” With files from Star wire services