Oil shock continues to rock international markets as the price remains abnormally low. While IMF forecasts of global economic growth are being revised upwards as a result of cheaper oil, there’s a wide variation around the world in countries’ ability to weather the crash. In the East, it’s feeding the Russian currency crisis, while in the West it’s providing long-awaited stimulus to the American economy.
The United States will likely remain the winner of the price drop. Cheaper oil in America will result in a higher USD, low interest rates, subdued inflation and huge consumer savings, which in turn will support the expected U.S. housing recovery. American consumer confidence reached the highest level in eight years in December, and businesses are responding with expansion-minded and aggressive strategies. Wage growth is accelerating and the country is quickly approaching full employment. While the price crash will cause some slowdown in Energy and related industries, its effect on the country will be a net positive and oil production is still expected to increase in 2015.
For Canada, it seems likely that there is more downside to the prolonged price slump. Lower cash flow in the industry will have a direct impact on employment in Alberta, Newfoundland and Saskatchewan, and by association, oil sands commuters from Atlantic Canada. Lethargic export performance has put a dampener on business investment spending and the loss of royalty income will add to government belt-tightening. On the bright side, lower oil prices will cushion the expected decline in new home sales, especially important in southern Ontario, where manufacturing prospects have now also improved.
TEC members can read this month’s report here.