(Oilweek – The Canadian Press)
Soaring oil prices have started to deliver more pain than gain for the Canadian economy, which has profited from the country’s energy exports, says a new report.
While it is true that oil exports have, in the words of Bank of Canada governor Mark Carney, made “Canada wealthier as a nation,” people are paying a price in terms of higher gasoline, electricity and heating charges, says Douglas Porter, deputy chief economist with the Bank of Montreal.
Porter said fuel prices have risen so much that energy is now consuming a record seven per cent of Canadian household spending and “looks poised to continue heading higher.”
But the big loser is Canadian industry, which is being hammered both from higher production costs and from the slowdown in the world and U.S. economies struggling to cope with the high fuel costs.
The auto sector has been particularly impacted, slicing U.S. auto sales to the lowest level since the recession of the early 1990s.
Since Canada produces twice as many vehicles per capita than the U.S. and most head south, lower demand in America disproportionately hurts the Canadian sector, says Porter. He estimated Canada has lost 30,000 auto jobs from its peak, most in Ontario.
“The received wisdom in recent years is that the Canadian economy benefits on net from higher oil prices, given the country’s status as a significant and growing net energy exporter,” he writes in a three-page report.
“There is a strong case to be made that the surge in oil prices crossed the tipping point this spring from providing some economic ballast for the domestic economy to acting as a heavy anchor.”
According to the analysis, the “tipping point” came when world oil prices hit the US$120-130 range and kept heading higher, destroying the illusion that the soaring prices were a temporary phenomenon.
“That’s when we saw U.S. auto sales really crumble,” he said. Read the complete article.