“Oil prices sank to their lowest level in nearly seven years, threatening fresh pain for Canada’s economy.
Benchmark West Texas intermediate tumbled nearly 6 per cent to $37.65 (U.S.) a barrel, its lowest since February, 2009, as world markets digested the move by the Organization of the Petroleum Exporting Countries to avoid setting new production quotas for its member states. The drop in oil prices triggered major falls in both the Canadian dollar and the stock market. For Canada’s economy and government finances, oil’s woes threaten to jeopardize hopes for a slow climb from an economic contraction as resource-sector incomes dwindle beyond the point where the new promised federal infrastructure spending can reverse such a blow,” wrote Jeffrey Jones and David Parkinson for The Globe and Mail on Monday December 7, 2015.
Jones and Parkinson continued, “Canada’s economy grew at an annualized pace of 2.3 per cent in the third quarter, reversing small economic contractions in the first and second quarters. But some economists have speculated that fourth-quarter growth could come in at less than 1 per cent, in light of the renewed drag from oil. It’s particularly bad news for the economy of Alberta, centre of the country’s energy industry, which suffered a recession this year and has seen its unemployment rate spike to 7 per cent from 4.5 per cent at the start of the year.
Oil’s struggles mean more suffering for the Canadian dollar. It fell .84 of a cent to 74 cents (U.S.) on Monday, its lowest since June of 2004. Energy products represented roughly a quarter of Canada’s exports last year, and oil’s slump has been the key factor in the loonie’s 21-per-cent nosedive against its U.S. counterpart since the middle of 2014.
The cheap dollar has helped propel exports in non-energy goods this year, making them considerably more price-competitive for foreign buyers, but the loss of income for the energy industry has starved the economy of crucial business investment, especially in capital-intensive resource sectors.”
Read the full article here.
Raymond Matt, CFP, CLU, TEP, CHS
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