Surging oil prices won’t be a growth driver for Canada this time

Surging energy prices are typically a boon for Canada. But not this time.

Surging energy prices are typically a boon for Canada. But not this time.

On Thursday, oil soared above US$100 a barrel for the first time since 2014 as Russia began a full-scale invasion of Ukraine, triggering fears of a disruption to energy exports amid already tight supplies. Yet, what would haven been unambiguously positive for Canada’s oil-rich economy in the past may turn out to be a drag now, economists warn.

Income for the oil sector will jump, as always, and that will help boost government revenue. But there’s much less scope today for the oil rally to strengthen the Canadian dollar, which is one of the key ways benefits are transmitted across the country. The war, meanwhile, coupled with the rising costs to consumers could dent confidence and spending. 

“We don’t get quite the same bang for the buck or the same torque from higher energy prices that the economy would have had in the years gone by,” Douglas Porter, chief economist at the Bank of Montreal, said by telephone.

As one of the world’s biggest producers and exporters of oil, Canada’s growth can be impacted significantly by the energy sector, which accounts for about 10 per cent of its economy and 15 per cent of the benchmark stock exchange, the S&P/TSX Composite Index. That’s why an oil rally would have typically led to an appreciation of the currency in tandem with prices. But that hasn’t happened this year, with the loonie down 1.5 per cent in 2022.