Alberta wildfire may stall Canada's second-quarter growth

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.
"The question is does the Bank of Canada look through that?
I don't think the market will, which is why we expect the
currency to continue to weaken," he said.
The Canadian dollar has plunged more than three percent from
a 10-month high on Tuesday, driven by growth worries. CAD/
Last month the Bank of Canada held rates steady even as it
warned of downside risks to the economy.
Overnight index swaps now imply a greater than 20 percent
chance of a rate cut this year, a swing from a 20 percent chance
of a hike seen at the beginning of the week. BOCWATCH
BMO has added one percent to its third-quarter growth
forecast, noting that Alberta rebuilding efforts would likely
add to growth later this year and in 2017.
However, the incentive to rebuild may be reduced by
depressed oil prices that already weigh on capital spending.
"You almost have an excuse not to rebuild back to the prior
peak," said Holt.