Rampant wildfires could be a major disruptor for Canadian economy
An extraordinary start to Canada’s nation-wide wildfire season has already destroyed more than 5.5 million hectares of timber and is on pace to burn 7.5 million hectares by the end of the summer, larger than the land mass of New Brunswick. This would roughly match 1989 for the country’s worst wildfire season on record.
On top of the threat to life, loss of timberlands, damage to the environment and health consequences, Canada’s historic wildfires are also hurting the economy. The rapid spread of forest fires has already forced more than 100,000 people to flee their homes, caused scores of businesses to temporarily shut down and shrouded much of the country’s most densely populated regions with smoke for days at a time.
We estimate that the wildfires have already reduced overall Canada-wide GDP in Q2 by 0.1ppt. And if predictions of a record-breaking wildfire season turn out to be true, the level of GDP in Q3 could be cut between 0.3ppts-0.6ppts – a potentially larger hit than the -0.4ppt quarterly GDP impact from the 2016 Fort McMurray fires.
The bulk of the hit to the economy will be in mining, quarrying, and oil and gas extraction in Alberta, Quebec, Ontario and British Columbia where fires have already forced operations to shut down for various periods since mid-May.
Wildfire smoke is also causing bouts of poor air quality across much of Canada and parts of the US. So far, we don’t think this has had a measurable macroeconomic impact. But if smoke from the fires causes a higher-than-normal number of poor air quality days, it could restrict outdoor activities and lead some tourists to cancel trips planned for this summer. A study by Visit California found that 11% of potential travelers cancelled trips to the state during its record wildfire season in 2017. What’s more, a larger number of poor air quality days could disrupt Canada’s construction sector if labourers aren’t able to work safely outdoors.
While there will be some positive offsets from increased firefighting activity, support for those displaced from their homes, and rebuilding efforts once the fires have been extinguished, these will be overwhelmed by economic disruption from the fires this summer.
Ultimately, the economic damage will hinge on the degree to which the wildfires worsen this summer and, more importantly, where the fires occur. In a worse case, should wildfires shut major transportation corridors, cut off supply lines or disrupt power supply to large population and business centres, the economic consequences could be severe.
And these wildfire concerns are hitting a Canadian economy that we already expect will fall into recession this year.
Stay tuned, it looks like we’re headed for a history-making summer.
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