The debate over the benefits of oil exports to Canada’s economy continued Wednesday with the release of two reports, one which tried to debunk the notion that they hurt manufacturing in central Canada and another that found that sudden price spikes are a net negative.
The Institute for Research on Public Policy tried to debunk the notion that the country’s increased reliance on oil exports is hollowing out the manufacturing base in Ontario and Quebec.
Its analysis concluded that cyclical factors and global competition are mostly to blame for the decline in factory production in Canada over the past decade.
The IRPP study suggested the strong dollar has negatively impacted 25 per cent of total factory output, mostly in small, labour-intensive industries such as textiles and apparel.
The issue was given great impetus last week after NDP leader Thomas Mulcair blamed Alberta's oilsands for some of the difficulties facing manufacturers.
The Opposition leader made reference to "Dutch disease," which takes its name from the phenomenon observed in the Netherlands in the 1970s, where increased revenues from natural gas exports from the Dutch North Sea pushed up the value of the Dutch currency and inhibited manufacturing exports.
That view was quickly rejected by political leaders in Western Canada, including B.C. Premier Christy Clark, who told CBC Radio's The House, that his comments were "goofy."
And TD Economics added to the debate with a report that suggested that while Canada’s oil industry “continues to pull well beyond its weight in terms of economic activity” in the country, short-term price spikes of more than 20 per cent are a net negative for the economy.
Benefits spread across Canada
Research by the Bank of Canada has suggested that a 10 per cent change in crude prices affects Canadian real economic output by between 0.1 to 0.3 per cent. That includes benefits across the country, for example, such as orders for steel fabrication in Ontario or Quebec from Western Canadian petroleum firms.
“We calculate that the contribution from increased exports of Canadian oil and investment in machinery and equipment and infrastructure in the Canadian oil sands alone accounted for a third of the economic growth experienced in 2010 and 2011,” the TD report concluded.
And that didn’t include indirect effects from increased employment and income gains.
But TD study said a rally based on speculation or geopolitical concerns, including the 30 per cent surge in crude prices since last autumn, tends to crowd out the economic benefits as growing costs to oil-consuming regions in this country and our major trading partners, such as in the United States, take their toll.
That recent spike, it said “likely added a modest drag on the U.S. economy, where every $10 increase in prices shaves real GDP by 0.2 percentage points.”
Politicians shouldn't overreact to to Canada's "mild case of the Dutch disease," the IRPP suggests, recommending Ottawa limit its response to using the boom times to invest increased tax revenues in infrastructure that increases the competitiveness of the manufacturing sector as a whole.
That volatility continued Wednesday, as crude for June delivery closed at $92.81 US a barrel on the New York Mercantile Exchange, down $1.17 and at its lowest level since last November.
But this recent easing in the price of crude oil to below $100 US per barrel, TD concludes, “spells good news as it offers relief to major consumers, including Canadian households.