Canada’s economy to take a hit from Fort McMurray wildfires: economists
The wildfires raging near Fort McMurray that have halted oil production and forced tens of thousands to flee their homes will have at least a short-term impact on the economy, economists say.
“Something like 40 per cent of total oilsands production is now offline and that’s going to be subtracting directly from GDP in May,” says Gerard Walsh, an economist with RBC Economics.
READ MORE: Live updates of Fort McMurray wildfire
Previously, GDP had been forecast to show a small gain in May.
“As a result of these fires we’re looking at a loss of about 0.4 per cent, a fairly large decline on a monthly basis,” he said. “And that hits directly on our quarterly outlook for the second quarter this year. We’re now looking at 0.5 per cent growth in Q2.”
While the Q2 outlook has weakened, it should rebound in Q3, growing at three per cent.
“For every day that production’s offline, that’s just lost output for the year. So it will have an impact on overall annual growth, but it’s really changing the quarterly profile.”
The sooner oil production gets going again the better, but that hinges not only on the wildfires but also the damage left behind, and how soon people can get back to working — and living — in the area. Approximately 80,000 people have left the Fort McMurray area since Sunday.
In 2011, approximately 40 per cent of Slave Lake, Alta., a community of 7,000, was lost to fire.
That fire “coincided with a 3.6 per cent drop in the month’s energy output which led GDP to contract 0.2 per cent in that month,” said Krishen Rangasamy, Senior Economist National Bank, in an email to Global News.
He says it’s “not looking good” for May’s GDP, which would lead to a weak second-quarter following a strong start to the year in Q1.
“Impact of the May 2016 fires could be more devastating given the entire town of Fort McMurray is being evacuated,” Rangasamy said. “Moreover, energy’s share in Canadian GDP is now higher than back in May 2011.”
Colin Cieszynski, chief market strategist at CMC Markets Canada agrees the scale of this disaster is somewhat unprecedented, and the impact is hard to predict.
“I think there could be a significant impact on the Canadian economy in the short term. I know in the summertime we have fires and these sorts of things have happened before but this is a bigger scale than we’re used to,” Cieszynski says.
While oil prices have dropped, the sector is still a “huge engine” for Canada’s economy as a whole. But, Cieszynski says, the farther you get from Alberta, the less of an impact Canadians will feel.
One place all Canadians could get stung is at the pumps, but likely not far beyond the usual fluctuations. But that, again, hinges on how soon oil production can resume. While Canada’s lower output is unlikely to have a great impact on global prices, it could push them up domestically.
“There is a possibility you could see an increase in gasoline prices… it depends also on the stockpiles,” Cieszynski says.
Even after the fires abate and people can return, it’s unclear how much will be left of Fort McMurray and surrounding areas. Early estimates said 1,600 homes and buildings have been destroyed.
“It’s a big question mark: how long will it take for oilsands producers to return to full capacity and absolutely, the tragedy of what’s happened to people themselves,” Walsh says.
The region will feel the ripple effect by way of day-to-day spending all but drying up at stores, restaurants and other businesses.
In the long run there will be a boost to the local economy as the communities rebuild. The caveat there is where those rebuild dollars will come from. The Alberta government has forecasted nearly $58 billion in deficit over the next for years, as the province grapples with high rates of unemployment due to the nosedive in oil prices.
On Friday the province approved $100 million in emergency funding for evacuees.
The Federal and Alberta governments have pledged to match all donations made to the Red Cross in aid of the victims. The Red Cross is accepting donations via phone, online or through text message. Details can be found at www.redcross.ca.
Evacuees are asked to confirm their registration with the Red Cross by 11:59 p.m. Monday.
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