Oil sands fires send Canada GDP reeling in second quarter

OTTAWA: Forest fires in Canada’s oil sands region that disrupted production have pummeled the country’s economy, sparking the biggest quarterly decline in GDP in seven years, according to government figures.

Gross domestic product fell at an annualized rate of 1.6 per cent in the second quarter amid continued weakness in oil prices, said Statistics Canada.

It was the largest decline in quarterly GDP since 2009, but was only slightly bigger than analysts had forecast.

The government statistics agency pointed to a significant drop in oil production as 100,000 residents of Fort McMurray and nearby facilities in the heart of the Alberta oil sands region were evacuated in May to escape encroaching forest fires.

Oil output was reduced by an estimated 1.2 billion barrels per day at a time when Canada’s economy was still adjusting to the 2014 rout that sent crude prices plunging from above US$100 per barrel to below US$50.

Manufacturers supplying industrial machinery to the oil sector were also affected.

Analysts said they were expecting a hit from the worst disaster in Canadian history, following warnings from the central bank. Canada is the world’s sixth-largest oil producer.

Excluding oil and wildfire impacts, the Canadian economy actually grew slightly in the second quarter.

By comparison, the economy of the United States – Canada’s largest trading partner – grew 1.2 per cent in the same period.

Many observers, however, were surprised to also see a 4.5 per cent drop in Canadian exports in the quarter.

“All in all, the economic decline is in line with expectations,” Nomura bank economist Charles St- Arnaud told AFP. “But the downturn in exports came as a shock.”

The across-the-board downturn in exports was also the worst since 2009.

Crude exports fell 10 per cent while foreign sales of refined petroleum energy products dropped nearly 20 per cent.

Exports of non-metallic minerals were also down 18 per cent. A rebound in aircraft sales to foreign buyers was the only major offset to the slide.

Analysts agreed however that the worst appears to be over, and they expect a bump in the next quarter.

“Canadian GDP can be a rollercoaster ride, and the dip of 1.6 per cent annualized in Q2 was certainly evidence of that,” said Andrew Grantham of CIBC Economics. — AFP