Higher Gas Prices No Longer a Boon for Canada’s Economy

Have you noticed how expensive it is to fill up? Of course you have and I’m sure it’s been the subject around many water coolers in Canada. Rightfully so, year-over-year the price at the pumps is up more than 29 percent. This time there’s more to worry about. It used to be pain at the gas pumps was offset with better economic prospects for Canada. We’re an oil rich nation and higher oil prices are usually great for Canada’s gigantic oil and gas industry. More profits, means more jobs and that increases overall GDP, it’s a pretty easy formula. Not anymore, welcome to 2011 a new reality after the “Great Recession.” Gas prices are at record highs and Canada’s economy, including the TSX over-weighted in energy stocks, is not responding positively. The major issue is an unrelenting higher Canadian dollar and a lethargic U.S economy that can’t shake itself free from the affects of the 2008 housing crisis.

Canada can no longer assume that higher resource prices will boost our economy and keep us ahead of other nations. Here’s why? Canada’s stronger dollar is making it harder for domestic manufactures to sell their goods to anyone outside of our borders. Our biggest trading partner, the U.S. is no longer buying consumer goods at the rate it was before the recession. On top of this, selling to European partners is getting more expensive, because transport costs are up and Europeans buy products mainly from China at a much lower rate.

I’m not alone in my theory, recently CIBC Chief Economist Avery Shenfeld stated “an upward run in commodity prices is less likely to boost growth and get Canada to full employment as it might have been in the past.” He also states higher resource prices are to blame for the slightly lower level of GDP.

This is all fine and dandy for investors who are savvy enough to pull money out of the energy sector and find other places to stash it. But what about us regular Canadians, who just want to live an affordable life and raise our kids. What can we do to save money and prepare for higher gas prices and an uncertain economic future?

Number one, cut down on driving. I know it seems impossible for some  who have been driving for years, but it’s the only way you can reduce your gas bill. Think about how much you drive and where you can cut back. Can you car pool with colleagues, take public transit, bike, walk or work from home once a week. Anything that will get you out of your car will put money back in your wallet. Gas prices in Canada are still half of what European drivers pay and every indication shows we will be playing catch-up with prices in the next few years. If you must drive make sure your car is energy efficient, your pocket book and the environment will thank you. For those who really want to make a change, move closer to where you work and into a smaller house. This will drastically cut down on your bills and save you money on transportation and heating costs.

Canadians are living in a different reality now. It’s difficult to understand, but our old ideas about investing and the sectors that are considered safe in Canada, are no longer true.  We often hear about the U.S wanting to break its dependency on foreign oil, but what about Canada’s dependency on domestic oil. Moving forward Canada will likely continue with higher gas prices but this time with minimal economic benefits.

Rubina
Writer for RateSupermarket.ca

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