The Effects of Falling Oil Prices

Effects of Falling Oil Prices Ian MacLean Greater KW Chamber of Commerce Greater Kitchener Waterloo Chamber of Commerce Ontario Blog

Ian McLean, President & CEO, Greater KW Chamber of Commerce

In the early days of 2015, the Canadian business agenda has been dominated by falling oil prices and a drop in the Canadian dollar. The political discussion is now focused on whether these trends are positive or negative, and for which regions of Canada.

Overall, the drop in oil prices is expected to dramatically shift the balance of power among provinces this year, with Alberta growth cut in half and Ontario and British Columbia leading the nation. Traditionally, lower energy prices lead to lower costs for central Canadian manufacturers, however economists are now predicting that it could take some time for this sector to rebound after the downsizing that occurred over the past decade.

The more positive short-term development for Ontario manufacturers is the increase in demand that will result from both the lower Canadian dollar and expanding American market.

Over the longer term, the dollar will have to decline further to attract significant manufacturing investment into Ontario that is currently located in Mexico and the southern United States.

Unfortunately, the drop in oil prices is somewhat offset by the continuing increase in Ontario electricity rates, which have risen from 8 cents per kilowatt hour in 2009 to 11.3 cents in 2014, escalating again this year to 12 cents.

A report from the Royal Bank of Canada last week argued that the weaker Canadian dollar and higher spending in Canada and the U.S. will more than cancel out lower oil prices. The largest risk to the Canadian economy is cuts in investment across the domestic gas industry and declines in government revenue. The federal fall economic update released last November warned that cheaper crude oil could cut $500 million in 2014 and $2.5 billion annually between 2015 and 2019, along with significantly dropping the national GDP.

All domestic and international developments aside, the projections for Waterloo Region are solid. Helmut Pastrick, chief economist of Central 1 Credit Union informed the audience at a chamber event last week that despite volatility in manufacturing and stagnating growth rates in many areas of Ontario, Waterloo Region is well-positioned, thanks to a strong technology sector, expanding educational institutions, and major construction projects such as the LRT, which are often undervalued for their contribution to job creation and sustained economic activity.

It has been an interesting start for 2015, however the prospects are finally positive for Ontario and Waterloo Region remains strong.

Originally published in the Waterloo Chronicle