The economic pendulum swings again


The grand expanse that is Canada guarantees that one of the iconic realities of our national character remains our ability and willingness, when necessary, to pull up stakes and head for wherever the pastures grow greenest.

Rarely, of course, has that been Atlantic Canada.

Most often – at least since Confederation made honest European invaders of some of us – the Elysian fields of our economy have been located in Ontario, the country’s traditional manufacturing hub. That’s where, as the late, great Stompin’ Tom Connors once famously wrote, “the Maritimers all go.” 

Or, they did.

Over the past decade, or so, the big employment draws have been the tar sands of Alberta and the surrounding support industries of the oil and gas sector in Saskatchewan and British Columbia. That’s where, lately, my friends and former neighbours sojourn – driving trucks, working back-office jobs and otherwise punching gilded time clocks.

Or, again, they did.

Now, the shift – as inevitable as the ebb and flow of an ocean tide begins again, and one of Canada’s leading financial institutions, the Royal Bank, is sounding almost chipper.

“There has been considerable discussion about the negative impact of falling oil

prices on the Canadian economy,” Bank economists Paul Ferley, Nathan Janzen and Gerard Walsh write in a recent monograph. “This has been reinforced by anecdotal reports about oil-producing companies cutting back on investment spending particularly within the oil sands. However, as we have emphasized in earlier commentaries, there are offsetting positive outcomes from lower oil prices.”

The first, and most obvious one, they note, is the concurrent boost to the U.S. economy, on which Canada depends for much of its export business (some $300-billion a year). “A stronger U.S. economy implies a growing market for Canadian exports. This is the case despite the recent expansion of oil production in that economy reflecting greater utilization of shale oil reserves. Though the U.S. oil and gas sector is likely to see reduced investment activity, its share of overall capital spending is relatively small.”

Secondly, falling oil prices depresses the value of the Canadian dollar relative to its American counterpart. Again, that’s good for domestic manufacturers and exporters, whose wares suddenly cost less to American buyers.

“The third key offset,” the economists report, “is that Canadian consumers will also be looking at lower gasoline prices that will provide an attendant boost to consumer spending domestically. It is of note that while business investment is a sizable 13 per cent of nominal GDP (including investment in intellectual property products), consumer spending is a massive 54.3 per cent. Thus, a small rise in consumer spending can go a long way to offsetting a marked drop in investment.”

All of which has Ontario Premier Kathleen Wynne fairly salivating. And why not?

For years, that once-mighty, supremely confident, magisterially self-important province, has suffered the indignities that $100-per-barrel oil has wrought on its manufacturing-export economy, including an ignominious slump into have-not status in the federal equalization formula. Now that the price of benchmark West Texas Intermediate oil has settled below $53 a barrel, Ms. Wynne is doing her level best to appear generous.

“Ontario’s economy can be a buffer,” she told the Globe and Mail last week. “We have a diverse economy and it can be a buffer in a time like this, against some of that volatility. I don’t wish for low oil prices and a low dollar for Alberta. But at the same time, we want our manufacturing sector to rebound. So if that (low oil price) helps, then that’s a good thing.”

In reality, though, as long as Canada’s value to the world is predominantly measured by the oil and gas it extracts and the pipelines its builds – which has been the common hymn, soulfully trilled by the western caucus of the reigning Conservative Government in Ottawa – volatility, and all that this implies, is likely to be the national economy’s organizing principle for years, even decades, to come.

Shall we now expect a new wave of pink-slip-bearing, prodigal Maritimers returning to their roots down home, where the pastures are, if not exactly green, a little less brown than they seemed not so long ago?

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