Canadian economy will feel the heat of Fort McMurray fires
The merciless wildfires continue to rage in Fort McMurray, Alberta, and the smoke definitely hasn’t cleared yet. However, when it does, there will be a lot to survey — including the full impact on people’s livelihoods and their futures.
There will be long-term recovery from such a large-scale fire that has consumed city blocks, and the full scale of the impact on the residents (and natural habitat) is yet to be measured. While the situation has affected almost every individual Canadian in one way or another, there’s another component to all of this that is also yet to be determined: our country’s economic health.
It’s no secret that Fort McMurray is a large centre for oil and gas, and that Alberta has been one of the biggest drivers of our growth in recent decades. However, the fire already has some big producers warning that they might not be able to deliver on contracts due to compromised operations.
While lower supply is driving up prices of crude, the inability for big producers to ship as much to the U.S. could have more damaging implications. It’s true that there’s a surplus of supplies that drove down gas prices to begin with, but experts are warning that as this situation drags out, Canada’s exports will drop while surplus dwindles. Reports say as many as 1.1 million barrels of oil per day have been taken offline as big companies shut down operations, mainly for the safety of their workers.
Investors can be skittish during the best of times, so a fire of this scale could throw off the balance of foreign dollars flooding into Canada’s energy sector. There hasn’t been a lot of talk in mainstream media about the impact to oil sands investment — it has focused primarily on the dropping oil production in the region — but the foreign stock in Canada’s investment sector was valued at a whopping $271 billion in 2014 alone, according to a government website. Obviously, the health of our oil-rich region and investor confidence go hand in hand.
Apparently, it’s not all bad — an article from Huffington Post says while there will be some kind of an impact to Canada’s economy, it won’t be as bad as initially expected. More specifically, it notes that while the country’s economic growth may shrink by 1/10th this year, the expectation is still a 1.6 per cent overall growth in the Canadian economy. This is in stark contrast to another recent article from the same source (albeit written earlier) that has a major bank official predicting no growth at all for the economy during this quarter.
While an article from Maclean’s magazine says that natural disasters have generally had only a short-term effect on the Canadian economy in the past, there are real fears that “business as usual” in Fort McMurray might not return after this one — meaning the country will have to step up exports of other resources or find another solutions to keep deficits and debt from spreading like wildfire.
Obviously, the first priorities for the country are taking care of those who have been displaced, as well as developing rebuilding plans. As we band together to help those affected directly by the Fort McMurray fires (as we should be), even those of us thousands of kilometres away could be bracing for the economic shockwaves.
It will be interesting to see how the free-spending Liberal government — which already predicts large deficits during its mandate — will respond to Canada’s potentially shrinking GDP. Until then, here’s hoping for the safety of each affected family.