The Conference Board of Canada has released a briefing that assesses the impact of the Fort McMurray wildfires on the economies of Alberta and Canada. The briefing estimates that the impact to overall GDP in Alberta will be slightly negative for 2016 as a whole, while at a national level, the impacts will hardly be noticeable.
Highlights of the report include:
“The true cost of this tragedy is the effect on people’s lives and livelihoods, the loss of homes and personal items,” said Pedro Antunes, Deputy Chief Economist, The Conference Board of Canada. “The lost assets will be rebuilt—generating additional economic activity. However, this does not suggest in any way that Albertans or Canadians are better off. In fact, the funds put towards replacing lost capital will leave the provincial and federal governments with more debt, and the insurance industry with the challenge of absorbing what will most likely prove to be the costliest natural disaster in Canadian history.”
The shutdown of activity in Fort McMurray and in the oil sands will have a major impact on the local economy in the short term. However, at the provincial level, much of the economic activity lost in the city of Fort McMurray will likely accrue elsewhere. Families that have temporarily moved to other areas, mostly within Alberta, will need to spend on food and accommodations and other services.
Oil sands production will be lost for some weeks, but how large an effect will depend on the length of the shutdown. The Conference Board assumes that most facilities will be up and running by mid-to-late May and that lost oil production will average about 1.2 million barrels per day for 14 days. This would translate into roughly $985 million in lost real GDP—or 0.33 per cent out of Alberta’s GDP in 2016 and only 0.06 per cent out of Canada’s GDP.
However, there are other mitigating effects; the sheer size of the firefighting, emergency and clean-up effort will generate plenty of economic activity. Insurance companies have been quick to mobilize staff and services to assess damage, provide assistance, and issue emergency cheques. Households are also getting emergency funding from the Red Cross, while the Alberta government is also disbursing $1,250 per adult and $500 per dependent to evacuated households. These funds, totalling around $160 million, will be quickly spent to meet the immediate needs of evacuated households. These efforts will help bolster real economic activity in the province.
Overall, the net effect on the provincial economy is expected to be relatively minor, taking about one percentage point out of real GDP growth in Alberta in the second quarter. While this is significant, it will be temporary as real GDP growth would be boosted by a similar amount once oil sands production ramps back up.
Beyond 2016, the rebuilding effort is estimated to add roughly $1.3 billion in real GDP to Alberta’s economy in 2017—adding 0.4 percent to overall provincial growth. Construction activity in Fort McMurray will likely return to its peak year levels as residential and other infrastructure is rebuilt. Early estimates suggest that in Fort McMurray, 2,400 buildings were damaged or destroyed, including 1,600 private dwellings that were completely destroyed. Most of Fort McMurray’s public buildings were saved from the fire but the city will require additional sums to repair and rebuild roads and other infrastructure. Construction will likely remain elevated in 2018 and perhaps 2019 as rebuilding is completed.
It is important to note that GDP measures economic activity that generates income through wages, profits, or the use of capital. GDP does not directly measure the losses to wealth or assets, such as homes or vehicles. Nor does it measure the direct hit to infrastructure or private capital.
Read the May 2016 issue of Business Review USA & Canada magazine