Cheap oil may bring winners and losers — but it'll cost you
Governments missing out on as much as $13 billion in revenue because of suddenly cheap crude
Tonight's first order of business — a sobering look at the effect of declining oil prices, and a reminder that when a country is as reliant on one sector as Canada is, in the end, we all pay the price.
Although consumers will no doubt enjoy the benefit of cheaper gasoline or home heating oil, savings that put dollars back in our pockets, cheaper oil is already leading to cutbacks in investment plans. And when businesses stop investing, they stop hiring. As long as Canada isn't a more diversified economy, oil south of $70 a barrel hurts us all.
— Amanda Lang
Ask any executive on Bay Street, or worker in Alberta's oil patch, or parent filling up the gas tank to get the kids to practice. Many would agree, the crash in oil prices was one of the biggest business stories of the year. Its impact reverberating from west to east, and beyond. A CIBC report Tuesday looked at this year's momentous oil decline, and attempts to gauge the impact country-wide.
The bank calls it "an unprecedented development" that is expected to cost the federal and provincial governments as much as $13 billion in lost revenue. Alberta, Newfoundland and Labrador, and Saskatchewan face the worst damage.
Energy accounts for some 25 to 30 per cent of those economies. Consumers are the undisputed winners, in the short term: the bank estimates each $2 drop in oil shaves about a cent per litre from prices at the pump. So, if oil were to average, say, $70 US a barrel in 2015, the savings to Canadians will feel like a $10-billion boost to incomes.
Longer term though, consumers may stop cheering the oil plunge. Governments could have to respond with higher taxes. Oil prices are the second most important factor affecting Canadian investment. That could result in reduced hiring, wage freezes or layoffs.
Besides falling gas prices, there are some other positive takeaways. As lower oil drives down the value of the loonie, the boost to Ontario's manufacturers and exporters could help the province lead the country in GDP growth next year.
Elsewhere, Canadians still don't need to worry about a recession. The bank notes that 75 per cent of Canada's exports lie outside the oil and gas sector — and those exporters will benefit from a cheaper loonie and strengthening demand from Canada's largest trading partner, the U.S.
Ultimately, these prices shouldn't last forever. CIBC expects a return to $80 US a barrel or more in the years ahead.