Ontario a Benefactor as Oil Prices Plunge
Falling oil prices is a hot topic across the country these days. The price plunge has had a ripple effect on the cost of gas, the Canadian dollar, and most recently, a cut in interest rates by the Bank of Canada. While the oil producing provinces, specifically Alberta, are taking a huge hit, Ontario seems to be benefitting from the current state of the oil industry.
“For us, it’s very good news, even if it’s not so much for the rest of the country,” said Mike Moffatt, Assistant Professor at Western University’s Ivey School of Business, in Ontario benefits as oil prices plunge.
“We are a net importer of oil. Obviously, we use oil in our day-to-day lives, but it’s a big input for our manufacturers as well,” he states.
“It’s always a good thing when the stuff you buy becomes relatively cheaper,” Moffatt adds. “And lower oil prices drive down the Canadian dollar, which helps our exporters.”
It’s estimated that every $10 drop in the price of a barrel of oil will result in approximately 0.1 to 0.3 percent in economic growth for the province. While this doesn’t seem like much, over the course of the year, this could mean a 1 to 2 percent boost in the economy.
The big winners so far are consumers, who are loving the drop in gas prices and the drop in interest rates; and the auto industry, which expects the drop in oil prices to give a boost to an already positive outlook for the coming year.
According to Carlos Gomes, a senior economist at Scotiabank, previous drops in oil prices have typically resulted in about a 4% increase in auto sales the following year.
The manufacturing sector in Ontario could also benefit. “In the U.S. market, if the cost of energy is going down, it means U.S. consumers are going to buy more,” says Jayson Myers, who heads Canadian Manufacturers and Exporters, in The Star.
He adds, “It means companies are going to have more money to invest, and it’s going to help the expansion we’re seeing in manufacturing. That’s good, because a lot of what we export is to manufacturing companies in the U.S. So we’ve got this combination of lower energy prices, customers with more money to spend and a lower dollar, which makes Canadian products more competitive, or at least is cash-flow positive for exporters.”
Most expect oil prices to bounce back somewhat; however, they do anticipate rates will be lower than we have been used to in the past few years.
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