Resource sector declines ripple through shrinking Canadian economy

The Canadian economy contracted slightly in February with mining and oil and gas sectors being hit hardest, according to the latest data from Statistics Canada.

Led by resource extractive industries that suffered a 4.4 percent decline in economic activity, the nation’s Gross Domestic Product (GDP) shrank by 0.1 percent –  the third time it has retreated by this amount in the last four months.

“We’ve certainly seen this contraction, from the highs of $81 billion being spent in the oil and gas industry in 2014, down to $41 billion last year and there’s a number of factors for this,” said Jonathan Stringham, fiscal and economic policy manager for the Canadian Association of Petroleum Producers.

“Lack of egress is one and certain regulatory policies put in place have certainly chilled our industry,” Stringham said of both provincial and federal rules and the lack of additional capacity to move Alberta bitumen to tidewater.

But the industry has been buoyed by the Alberta election of Jason Kenney and the United Conservative Party, noted Stringham; “because he’s very open to seeing changes we’ve been talking about in the investment community, who watched the election closely.

“I would be remiss to say that people are overly excited for our industry until we get market access,” Stringham said. “So our fingers are crossed that we get (Enbridge’s) Line 3 coming in the middle of next year and we see some positive signals on the Trans-mountain expansion.”

While oil and gas extraction was down 0.6 percent in February and 2.6 percent in January, the largest impact on the extractive sector’s decline came from a 4.4 percent decrease in mining and quarrying activity.

According to StatsCan, metal ore mining was down 4.8 percent and non-metallic mineral mining decreased 3.7 percent largely due a decrease in potash export to the United States, which suffered a 6.9% contraction. Coal mining was also down 6.1 percent.

And these resource production declines rippled through the economy, negatively affecting transportation and warehousing whose economic output fell by 1.6 percent. StatsCan reports these are “largely due to a 10.8% drop in rail transportation”, due to “widespread declines in rail movement of products, such as iron ore, potash and fuel oils and crude petroleum.”

“A train derailment near Field, British Columbia that closed an important rail line through the Canadian Rockies in the early part of the month all had adverse effects on rail transportation,” according to StatsCan.