We might not have to worry about labour shortages after all. Everyone is coming home from Alberta. Well, maybe not just yet.
By now we all know the story: OPEC refuses to regulate supply to control prices in what economists and media are calling “a power play against North American producers.”
The result is a lot of ink spilled in panicked speculation across Canada as a result of oil going below $50 a barrel. The Bank of Canada says that Canada’s GDP will be affected by a third of a percentage point, jobs will be lost in resource-rich Alberta, Saskatchewan, Newfoundland and Labrador, and government coffers (and thus spending and taxes) will be affected. But what about here at home?
“Lower oil price impact ‘slightly positive’ for Canada,” said the Regina LeaderPost on Tuesday. “Alberta oil job losses will benefit Ontario, Manitoba, Quebec,” said the Financial Post on Monday. RBC’s chief economist stated this week that “falling oil prices may benefit Canada’s economy,” while BMO’s chief economist said Tuesday that “Ontario and B.C. will battle it out for who will see the fastest growth in 2015.”
The common theme here is that the positive impact on the energy-dependent U.S. economy will spark increased demand for Canadian-produced goods. To pump that desire, Canada’s weakened currency will make our businesses more competitive (for exporting, at least). And ultimately, consumer spending could be triggered by the savings in fuel costs and possible price reductions due to lower shipping costs.
If we think of Greater Victoria as a distinct metropolitan economy, it is easy to consider (perhaps selfishly) that the decline of oil prices could be tremendously positive for our economy. Our economic growth is driven by three things: exports, job creation and local consumer spending.
So, what does $50 oil mean for these three things here in Victoria?
• Exports. The Greater Victoria Development Agency released a study in December that showed that there are hundreds of local companies that sell around the world. We estimated that exports account for a full third of Victoria’s $15-billion annual regional GDP.
This means that if oil prices keep the Canadian dollar in the $0.80-0.90 US range, our businesses have a temporary competitive advantage in international markets — including our largest market, the U.S. Note that exports also include tourism.
As we come off a strong year in 2014, the weakened dollar will not only make Victoria more attractive as a place to visit, it will make it less expensive to get here and less expensive for foreign tourists to buy local products and services. This is good for hotels, restaurants, retailers and the hotel room fees that allow our destination marketing organization (Tourism Victoria) to drive more visitors.
• Job creation. If exports increase and increased demand is sustained, these businesses will hire accordingly. Export companies pay higher wages than non-export companies, which means these new jobs are more likely to have spinoff effects related to household spending.
Businesses such as Ramsay Group, Seaspan and other trades-related sectors could see an influx of workers coming back from northern Alberta and setting their sights on local housing. The spinoff effect of job creation is what leads to local spending.
• Local spending. While discretionary income is a good indicator for retail spending increases, the best indicator to predict retail spending is real estate sales. When you move to a new apartment or house, you need to change the bathroom setup, downsize or resize, add new furniture, decorate or even embark on renovations.
If oil prices have impacts on exports and this triggers job creation, expect retail spending to strengthen. The bonus here is that since we live on an island, transportation (shipping costs) to get goods here is typically expensive. If this is reduced, we could see better prices in the aisles — or at minimum, our small businesses will be able to strengthen their margins and thus become more resilient against other external factors.
On Thursday, oil closed up $1 at $48.93 a barrel. We’ll see what happens here, but from my perspective, the Greater Victoria region could see positive impacts where other regions of Canada might be a bit panicked.
But don’t expect those Albertans to sell their houses and move here just yet.
Dallas Gislason is economic development officer for the Greater Victoria Development Agency.
