Oil Price Effect on the Canadian Economy

Price of Oil Rises above $108 a Barrel

The rising price of oil may seem like a great thing for the Calgary and Edmonton economies and real estate sector, however we have to remember that the Alberta economy has evolved and diversified. In many ways it is hampered by high oil prices, particularly those companies who are exporting goods. While it is always great to see Alberta thrive and get the best benefit of the oil reserves and to develop the oilsands, rising oil prices are going to a bad effect on the Canadian economy.

According to a report, $120 a barrel for oil is the specific “danger point” at which the cost of oil starts to move above 5.5pc of total global economic output and that every extra $10 on the price of oil shaves 0.2pc off world growth. A number of predictions are that oil could hit $200 a barrel.

Canada is said to have the “Dutch Disease”, that is the manufacturing sector is damaged by the high currency valuation that results from our oil exports. The high demand for our dollar pushes the dollar’s price up. And it’s exacerbated by other high commodity prices including potash and gold. It’s expected that Japan will need to purchase a lot of BC timber to rebuild. That means the Canadian dollar will see continuous upward pressure. Not a good scenario for Canadian manufacturers.

With a sluggish Ontario and Quebec economy, the Federal government will see its tax revenues fall, and it’s unlikely Alberta’s oil tax revenue will offset that loss. The fact is, Ontario is the country’s economic engine and when it fails, the whole country is in for a shock. Of course, if you’re selling million dollar homes, you may still do well this year. Sales in Edmonton will probably rise. If interest rates rise and homeowners lose their jobs, it doesn’t bode well for real estate sales in most areas of the country.


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