Persistent low oil prices would hamper Canada’s economy

Economic growth would be slowed by 23% through 2021, says CERI study

That low oil prices are hurting Canada’s economy is hardly news to Canadians.

Just how much they could hurt over the next several years? That may raise a few eyebrows.

In recent months, the Canadian Energy Research Institute (CERI) mapped out the potential impacts of continuing low oil prices on the resource-centric Canadian economy.

Using two short-term scenarios running through 2021—one in which oil prices rebound to about $73 per barrel, and the other based on oil rising only to $51 per barrel—CERI’s study plotted the impacts on major economic variables, including gross domestic product (GDP), employment figures and tax revenue.

The results?

“Canadian economic growth could be, on average, 23 percent lower,” reads the report, “if low oil prices persist over the next seven years.

“There are two main takeaways from the drop in oil prices,” continues the report. “First, the drop in price has an immediate and temporary negative effect on the oil industry and other service-oriented sectors . . . second, the broader impact of low oil prices on Canadian economic growth is, on a net basis, negative.”

CERI’s study concluded that persistent low oil prices through 2021 would result in:

  • 25.0% lower federal tax revenue, based on the differences in corporate oil revenues and personal taxes paid by employees;
  • 24.5% lower GDP growth, caused by a drop in Canadian national incomes and spending power;
  • a 22.6% difference in overall compensation, reflecting the loss of highly skilled and higher-paid jobs in the oil industry;
  • 22.4% fewer provincial taxes collected; and
  • almost 116,000 fewer jobs (direct, indirect and induced), on average, a difference of 19.7%.

CERI’s economic modelling also indicates that for every Canadian dollar gain in the price of West Texas Intermediate oil, Canada’s GDP gains an average of nearly $1.7 billion.

The February 2016 study examined the impacts of sectoral and regional forces, including:

  • consumer spending based on low commodity pricing;
  • consumer spending based on higher-priced imported goods (caused by a falling Canadian dollar);
  • falling investment and employment in the resource sector; and
  • rising investment and employment in the non-resource sectors.

“Lower oil prices are, on the whole, not favorable for Canada,” reads the report.

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