Fort McMurray fire has economists cutting growth forecasts for Canada
'If we assume those shutdowns last for 2 weeks, they would subtract 0.5% from May GDP' — Royal Bank
Economists trying to gauge the impact of the Fort McMurray wildfire and its disruption of oilsands production are already cutting their outlooks for the Canadian economy.
Current estimates are that anywhere from 900,000 to one million barrels of oilsands production have been suspended due to the fire.
"The situation remains fluid, and uncertainty remains about how long production disruptions will persist," economists at Royal Bank of Canada said in an economic comment released Friday. "However, if we assume those shutdowns last for two weeks, they would subtract 0.5 per cent from May GDP."
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RBC said it expects much of the decline in oilsands production will be reversed in the months to come.
"Although the loss of oil production is likely to be the largest factor impacting monthly GDP data, the absence of evacuated residents will also limit retail sales and hours worked outside of the oil and gas production sector," the bank said.
Factoring in the economic hit from the fire, coupled with a subsequent recovery, has led RBC to cut its forecast for second-quarter annualized growth to 0.5 per cent. Previously, the bank was expecting Canada's economy to grow at a 1.5 per cent pace in the April-to-June quarter.
RBC said it expects the economy to bounce back after that, however, to a pace of three per cent growth in the third quarter. That's up from two per cent currently.
But the longer the shutdown lasts, the worse the second quarter numbers will be, and the bigger the rebound could be in July through September.
Meanwhile, in the wake of Friday's national employment report, economists at BMO Financial cut their own second-quarter GDP estimate to zero from 1.5 per cent amid the fallout from the Fort McMurray wildfires.
"This estimate should be viewed only as a placeholder, until we receive further information on the full impact of the disaster," BMO cautioned, however.
Douglas Porter, chief economist at BMO, said he doesn't think the fire will lead the Bank of Canada to ease interest rates to provide support for the economy.
"We continue to believe that the bank will stay on hold over the next year, although this week's series of bad news put any chance of rate hikes even further into the already far-off distance," Porter said.
Charles St-Arnaud, a foreign exchange strategist at Nomura in London, said in a research note published Thursday that a reduction of about 500,000 barrels of production per day, roughly 20 per cent of overall output, would shave about 0.12 percentage points off growth for each week of stoppage.
"Most of the impact will be in the medium term, as Fort McMurray will need to be rebuilt, as it is the base for most of the oil sands operations in Alberta," said St-Arnaud.
"The reconstruction efforts mean that resources in the construction sector in the region will likely be diverted toward that task rather than towards investment in the oil industry which could delay some projects and slow further the expansion in oil production."