OTTAWA: Canadian growth was led by the oil sands, where output surged 17 percent in the latest two months to a record $39.2 billion, smashing the previous high set in February by over $1 billion.
Statistics Canada Wednesday reported that GDP rose 0.3 percent in July on the heels of a 0.4 percent rebound in June. CBC Radio quickly dismissed the gains as “tepid” and signalling “a slight upward trend,” the polar opposite of the drama it attached to the recession supposedly signalled by a 0.1 per cent dip in second-quarter GDP.
A cumulative gain of 0.7 per cent over two months represents significant growth of over four per cent at annual rates, so it deserves closer study than the CBC gave it. The sudden turnaround in GDP sheds significant light on the underlying sources of weak GDP earlier in 2015, which some rashly called a recession.
Growth was led by the oilsands, where output surged 17 per cent in the latest two months to a record $39.2 billion, smashing the previous high set in February by over $1 billion. The rapid advance in oilsands output puts a different slant on their retreat in the spring, which it has become clear was entirely related to unscheduled maintenance and encroaching forest fires which forced two plants to evacuate employees and stop operations.
Too many analysts looked at weak oil prices and falling oil output and simple-mindedly made the connection that the two were related. In reality, lower output reflected one-off factors interrupting a strong upward trend as new oilsands plants come on line this year and next. Because of the high fixed costs required to build oilsands plants, their output only drops due to supply disruptions. Even during the worst of the severe 2008-2009 recession, output from the oilsands never declined for even one quarter. Once you switch on these plants, you never willingly turn them off for an extended period. Analysts and pundits failed to incorporate this important fact into their analysis of lower GDP in April and May, so anxious were many to push the narrative of an economy in recession.
