Cheaper oil, poorer Canada

Consumers and manufacturers are reaping the benefits of OPEC’s inability to prevent the slump in global crude oil prices, but the lower energy price is also eroding the wealth of Canadians right across the country.

In the clearest sign of that decline, the Canadian dollar has retreated dramatically, closing the week at 78.8 cents (U.S.), down 6 per cent on the week and 16 per cent since the beginning of October. A lower dollar is a boon to exporters, but shrinks Canadians’ purchasing power compared with that of the U.S.
While consumers and energy-intensive industries in Central Canada will see some relief in the lower prices, the slump is a mixed blessing for Canada. Energy production and investment has been a key engine of economic growth in Western Canada, as well as on the East Coast.

Don Drummond, chief economist at Toronto-Dominion Bank, said the drop in oil and natural gas prices has reduced Canada’s export earnings, and will take a significant bite out of corporate profits and both provincial and federal government revenues.

While energy-rich Western Canada will bear the brunt of the impact, the price slide will also reduce demand for manufactured goods in Central Canada, and is contributing to the falling share prices on the energy-heavy Toronto Stock Exchange.

Globe and Mail