WHY CANADIAN ECONOMY IS IN DANGER OF SLOWLY SLIDING IN TO A SECOND WORLD ECONOMY

Statistics Canada’s figures released on 30 May indicated that Canada’s economic growth slowed to an annual pace of 1.2 per cent in the first three months of 2014. It was the weakest growth since the fourth quarter of 2012. As per Statistics Canada, the gross domestic product of Canada in the first quarter of 2014 marked a deceleration from the 2.7 per cent of the final three months of 2013.

Much of the above is being attributed to severe winter which apparently impacted the overall domestic demand, or spending by consumers, government and business. Harsh winter conditions in US are also being cited as one of the contributing factors apart from drop in housing construction.

            

The weaker first quarter, however, hasn’t changed the 2014 outlook for some observers. A lot of hope is being pinned on US economy to bounce back and businesses in Canada loosening their purse strings to invest. However, some analysts fear that domestic demand are likely to remain under pressure as debt-laden households constrain growth in consumption, housing constructions slows, and government spending remains capped by tight fiscal policy.

But the abovementioned fear does not recognize the elephant in the room – the tardy pace of the exports and the ominous circumstances threatening to crush the expansion potential of major components of Canada’s export resource, i.e., oil sands (and yet to be tapped gas for export as LNG).

People who are familiar with the basics of Canada’s GDP know the significant contribution oil makes to Canadian GDP and the huge service sector it supports (remember, service sector is one of the two main components of Canada’s GDP). The Canadian Association of Petroleum Producer’s 2013 Crude Oil Forecast, Markets and Transportation report forecasts Canadian crude oil production will more than double to 6.7 million barrels per day by 2030 from 3.2 million barrels per day in 2012. This includes oil sands production of 5.2 million barrels per day by 2030, up from 1.8 million barrels per day in 2012.

But the situations that are surrounding oil sands today seem almost poised to strangulate the lofty expansion plans set forth by the industry. One of the main stifling reasons being lack of infrastructure to export the bitumen out of Alberta – the various proposed pipeline projects meant to solve this situation are getting increasingly bogged down in litigations, controversy and delays. One of the casualties of this disheartening situation was Total’s Joslyn North project which was recently put on hold for an indefinite period.

Over on the LNG export side of things too, the portents don’t inspire optimism: the tax regime of the Province (BC) is yet to be finalized, LNG supply economics is getting squeezed due to the recent gas supply deal between Russia and China and the issues with First Nations not settled yet.

The horrifying scenario of oil sands industry getting stifled and LNG projects not getting off the grounds (or just one or two LNG projects getting set up at best) is that Canada’s revenues will get severely impacted in which situation hundreds of thousands of jobs will not get created which will in turn mean opportunity lost in the boost the service sector would have got.

As more people get jobs and earn more, they spend more and, as this work force grows, they need more of everything - from Tim Hortons to pickup trucks. This leads to more jobs and higher wages in other sectors and other regions of the economy, so everyone benefits.

The knock-on effect of stifling of the oil sands (and the proposed LNG industry) will be so severe on the overall Canadian economy that many features of the first world economy that Canada is would get severely disrupted: health care, education, infrastructure, seniors’ care, all these sectors would be badly affected. What would that mean? It would mean Canada would slide from being a first world country to second world nation for all intents and purposes. Is this what Canadians would like for their children’s future?

Can something be done about it? Yes, sure but Canada does not have the luxury of time. The Canadian Federal and the Provincial governments would have to resolve the issues that have the potential of strangulating the oil sands and the LNG industry. The governments need to deal with the First Nations (FN) on top priority basis. The FNs are economically better off than before and smarter too – they now know better how to leverage off their so-called treaties with the Crown and wangle bigger slices of the pie.

The FNs are getting publicity savvy too – the latest example being to get Desmond Tutu to lecture Canada on climate change. What should be raising the alarm bells for the Federal and Provincial governments is that people like Tutu are not lecturing the other heavy oil producing countries nor even lecturing his own country (South Africa) on coal based power plants but comes almost half way around the world to lecture Canada.

This means that there is probably a sinister move to throttle Canada’s oil industry (which for all practical purposes is predicated on oil sands) and thereby deal a crippling blow to Canada’s economy and its economic clout. This is indeed cause for worry and the Canadian government with all the resources at its disposal, namely, CSIS and CSEC, should investigate and take necessary protective measures.

The global economic situation stands at a very critical juncture where economic outlook is still very uncertain and recovery mechanisms highly fragile. At such a juncture, Canadian economy is also walking a tight rope. A slight push or shove can potentially send Canadian economy on downward slippery slope, some forces seem to be wanting to do that. It is up to Canada (its government and the peoples) how it handles this and succeeds in continuing to be a vibrant first world nation. Canada would need all the speed, alacrity, nimble-footedness, resilience, determination and innovativeness to come out on top.