Alberta wildfire may stall Canada's second-quarter growth

Thu May 5, 2016 6:14pm EDT
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By Fergal Smith

TORONTO May 5 (Reuters) - Production cuts in Alberta's oil sands forced by a raging wildfire may cause Canadian growth to stall in the second quarter, economists warned, predicting this would help keep the central bank on hold and weigh on the Canadian dollar.

The wildfire near the oil sands hub of Fort McMurray has forced the evacuation of 88,000 residents, destroyed 1,600 structures and disrupted energy production.

At BMO Capital Markets, senior economist Robert Kavcic now expects no growth in the second quarter, having previously projected a 1.3 percent annualized gain, with most of the reduction due to the wildfire.

"It's typical of the disruptions you see when something like this happens ... just quite a bit bigger than some of the past experiences," he said.

Toronto-Dominion Bank is still finalizing projections, but expects the fires could shave as much as 0.3 percent off May growth, according to senior economist Michael Dolega.

Weaker-than-expected trade data this week had already fed expectations for a sharp slowdown after a strong start to the year.

As of Thursday, the wildfire had led to nearly one-third of Canada's oil sands production being shuttered and key pipelines being closed, with no certainty about when they would reopen.

"This will significantly suspend the oil production in May and June at a minimum ... so you can't rule out the risk of an outright dip in the economy in the second quarter," said Derek Holt, head of capital markets economics at Scotiabank.   Continued...