Cheap oil prices impacts economy negatively, says Bank of Canada


Not so long ago Canadians outside of Alberta mostly were gushing about the savings at the pump. Gas prices were down, they were planning on buying even bigger cars and gas guzzlers. Then prices of everything else started to rise and the cost of cheap gas has suddenly become something of a burden. Oil_Apr10
In its quarterly Business Outlook Survey, the central bank surveyed 100 representative companies across various Canadian industries and found that broadly speaking, cheaper oil has reduced sales expectations and cut into confidence in doing things like investing in new equipment and machinery, and possibly hiring new staff.
The survey “showed that firms are quite pessimistic about expanding their capacity over the next year,” TD economist Leslie Preston said. “The oil price collapse is taking a toll on Canada’s economy.”
Hiring has dropped to its lowest level since 2009, when the world economy was in recession just about everywhere following the credit crisis.
Forty of the companies surveyed said they expect to hire more people in the next 12 months than they did in the previous 12. Another 40 said they expect to hire the same amount, with the remaining 20 saying they expect to hire less.
If there’s a source of strength, it’s that the bank’s report suggests companies with strong ties to the U.S. economy are more upbeat. The U.S. is benefiting more from cheap oil than most economies, because it is the most diverse economy on earth and cheaper energy is good news for virtually every other sector.
Several firms reported foreign demand had increased thanks to the weakened Canadian dollar, but “while many firms outside the energy sector characterize the effects of lower oil prices and the weaker Canadian dollar as favourable for their business outlook, they expect some of the benefits to unfold only gradually in the future,” the report says.
The impact of cheap oil is being felt more in western provinces, notably Alberta where hundreds of jobs are threatened and future investments in projects are being delayed or cancelled.


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