If you live in the path of wildfires in this country (as, sadly, growing numbers of Canadians do), you’re painfully aware of their tremendous toll. But even if you’re nowhere near the flames, the cost is high, and growing.
The damage from this summer’s fires across the country has already shown in big-picture economic data, indicative of the broader disruptions to normal activity from coast to coast to coast. With the country’s forests still ablaze – and important regional economic hubs such as Yellowknife and Kelowna forced into mass evacuations – our economic picture could be enshrouded in the haze for months.
Wildfires put a significant dent in overall economic activity in the second quarter, as blazes in several key oil, mining and forestry regions forced production shutdowns. Statistics Canada cited the fire-related slowdowns in its decidedly mixed May gross domestic product report, in which the country’s goods output – one side of the GDP equation – fell 0.3 per cent month over month. Statscan’s preliminary June GDP estimate, a 0.2-per-cent month-to-month decline, bears signs that production and transportation interruptions spilled over into June.
Canada’s June international trade figures, released after the May GDP report, largely confirmed that impression. Exports slumped badly, led by declines in shipping volumes of many of the same resource commodities that were hit by wildfire-related production cuts in May.
The wildfires have almost certainly dealt a blow to consumer appetites, especially in regions directly affected.
The Conference Board of Canada’s monthly consumer confidence index slumped to its worst reading of the year in June, weighed down most notably by falling sentiment in Alberta, where the fire impact was most severe in the spring. Since consumer confidence is generally a leading indicator of future consumption trends, that response may well translate into weakness in consumer spending into the summer months. (Statscan’s June retail sales report comes out Wednesday.)
With forest fires continuing to rage since then, and intensifying in many areas this month, we can expect to see further pressures on production and exports, and another serious blow to consumer confidence. That adds up to lower output, weaker demand – over all, a serious slowdown in the economy.
In late June, Oxford Economics projected that this wildfire season would knock between 0.3 and 0.6 percentage points off third-quarter GDP – provided the area of forest burned for the rest of the summer was in line with the average pace of the past six years. Instead, we’ve seen nearly double the destruction the independent economic research firm projected. And the fires are still raging.
Given that most economists expected little to no growth in the third quarter anyway, the mounting impact makes an outright contraction increasingly likely.
Some of the impact will be largely confined to the regions directly hit by the fires. Some will have broader implications on national economic activity, such as raw material supplies, transportation and exports. Some will bounce back once the fires are extinguished and rebuilding begins. Some will be lost forever: Things such as high-season tourism dollars, or Okanagan wine crops damaged by smoke and fire, can’t be replaced.
Regardless, it will be months before we see this damage work its way through the economic data.
August GDP numbers – the figures that will be most affected by the current wave of wildfires – won’t be published until Oct. 31. It could be toward the end of the year before we see the anticipated bounce-back from the slowdowns surface in the data. By the time the GDP figures are no longer coloured by wildfire distortions, we could be into 2024.
The impact from the fires will also contribute to inflation – eventually. A report last week from the Business Development Bank of Canada (BDC) noted that the severe damage to forests this summer will weigh on wood supplies and push up lumber prices, but it will take some months before those rising raw-material costs get passed along to consumers and new-home buyers. On the other hand, the slowing effects on the economy should have the opposite effect, dampening inflation pressures – but they, too, will take time to fully surface.
If you’re trying to get a handle on the evolving impact of the Bank of Canada’s interest-rate increases on the economy – a full-time occupation for a lot of economists at the moment, not least those at the central bank itself – this will make the task a fair bit harder over the next few months. The bank will be trying to gauge the underlying health of the economy, the state of inflationary pressures and the appropriate level for interest rates, through a lingering cloud in the data left over from the wildest wildfire season in history.
None of this addresses the immense toll on families, communities, wildlife and ecosystems from this summer’s tragedy in the forests. Much of that is immeasurable. But we’re all weaker for it in so many ways – including, but by no means limited to, our economic foundations.
More troubling still, severe wildfire seasons look likely to be more the norm than the exception in Canada’s future; this is one of the prices we pay for global climate change. Forest fires are shaping up to be a risk to economic stability, predictability and growth not just this summer, but very likely for many summers to come.