The falling price of oil has hit Canada hard, with Bank of Canada Governor Stephen Poloz warning that its effect would be “atrocious.” Considering that Canada has the third-largest proven oil reserves in the world (coming in only after Saudi Arabia and Venezuela), that’s not surprising.
Statistics Canada said that the country’s GDP shrank in January, unsurprisingly, with wholesale, retail, manufacturing and construction all contributing. But January’s shrinkage level wasn’t as bad as economists expected. Continuing low oil prices, however, are likely to take a heavier toll on the economy for the quarter as a whole and in months to come.
Interestingly, Canadians themselves in general don’t seem to be all that concerned, although businesses’ anxiety level about whether the falling economy could be a longer-term problem rose after the Bank of Canada cut interest rates in January, in what was supposed to be an effort to head off problems.
The move, which came as a surprise, apparently did more to boost worries than offer any support to the economy. In February the Canadian Federation of Independent Business Barometer fell to 59.1, from January’s 63.5—although in March it rebounded slightly, gaining a level of 61.5. According to the CFIB, the gains were more in service-oriented businesses and in construction, while the resources sector continued to decline.
Smaller businesses may be feeling somewhat better, but larger ones are still not happy—which means their investors need to beware. In January Target announced that it would be closing all its Canadian stores, cutting loose as many as 17,600 workers. Suncor Energy announced capital spending cuts that included the loss of 1,000 jobs. And in March Best Buy Canada announced a round of belt-tightening that includes closing 66 of its Future Shop electronics stores and rebranding others. Both full- and part-time workers will be hit, with 1,500 losing jobs, and the company will take a restructuring charge that could go as high as $280 million.
All those jobs going away, and other cuts as the ripple effects from the energy sector’s troubles spread, means that Canada is not quite such a happy place these days, even if its people don’t seem too worried. In fact, it would seem that worries are more for investors, businesses and the executives who run them, since Canadians outside Alberta are responding positively to Chartered Professional Accountants of Canada surveys about their own financial circumstances. They view lower interest rates and gas prices as positive news, seeing the glass as half full.