A Continued Period of Low Oil Prices Could Hurt the Canadian Economy by Elsie Ross
The oil prices are at an all-time decade low due the variation in oil supply, changes in the importance to the economy and the differences in the global economic climate. The reason for selecting this article is because the decline in oil prices is hurting some economies while others, majorly oil importers, are celebrating the low prices. While the amount of oil produced is necessary for producing one dollar of GDP, many countries are moving away from fossil fuel production to more efficient energies, hence diversifying the economy’s GDP generation to the service sector.
Research by the Canadian energy research institute shows that in Canada, the economy could take a major hit especially in the Western Canadian provinces which rely on oil revenue. On the other hand, regions that depend on export income could benefit from the subsequent lower dollar and see a higher growth, according to Millington, who is the study’s author (Ross). These provinces include the ones in eastern Canada. On average, the low crude oil prices would result in a 23% lower growth given that the West Texas Intermediate would average $46.26(USD) in 2015 rising to $51.52/bbl. by 2021. The average annual GDP growth of $89.56 billion would be 24.5% lower on an incremental basis than the mean annual GDP of $118.62 billion (Ross). The overall negative result would be affected compensations, few employment opportunities, low federal and provincial taxes, and low value of Canadian exports trade due to a boost in consumer disposable income. However, the positive effect of low prices on the global economy could also lead to positive growth for Canada due to increase in non-energy exports and improved business investments (Ross).
My opinion is that the low prices will help in cushioning the economy by boosting the manufacturing industries due to low production costs. The Canadian government and many other nations facing the same crisis, can diversify their wealth from energy to service sectors and create more jobs for people in areas such as transportation, trade, and manufacturing. Meanwhile, this continued plunge of oil prices may continue being detrimental to energy reliant economies and affect their GDP negatively. The best option is to start diversifying GDP from the energy sector and maximize on variables such as technology and innovation to support the economy and boost the GDP.
Work cited
Ross, Elsie. "Prolonged Period of Low Oil Prices Could Hurt Canadian Economy: Study." Web log post.Business in Vancouver. 9 Mar. 2016. Web. 23 Mar. 2016. <https://www.biv.com/article/2016/3/prolonged-period-low-oil-prices-could-hurt-canadia/>.
