Historic wildfire season could choke economic activity

Key Takeaways:

• This year’s wildfire season is already well on its way to beating the 1989 record of 7.5 million hectares burned.
• Sawmills, oil and gas sites, and construction sites have all been impacted and could be impacted more if severe wildfires continue as predicted.
• The nation’s GDP lost could be as high as 0.6 ppts.

The Whole Story:

Canadian wildfires aren’t just destroying trees. They are burning Canada’s GDP.

According to advisory firm Oxford Economics, Canada’s early-season wildfires have already reduced GDP in Q2 by 0.1ppt. 

And if predictions of record-breaking wildfires this summer are realized, Oxford’s preliminary analysis suggests cuts to Q3 GDP could be between 0.3 ppts and 0.6 ppts. This would make the impact worse than the catastrophic 2016 Fort McMurray fires. 

So far, Canada has passed the halfway mark to the previous record-holding year of 1989, when about 7.5 million hectares burned. According to Natural Resources Canada, over 100,000 people have been affected by evacuation orders so far this year, with an estimated 27,643 people still evacuated across the country due to fires as of June 8.

The firm noted that the bulk of the hit to the economy will be in mining, quarrying, and oil and gas extraction in Alberta, Quebec, and B.C. where fires have forced operations to shut down for various periods since mid-May. 

Researchers noted that poor air quality due to wildfire smoke may also curtail or postpone some construction activity. 

“In our low-impact scenario, we assume 10 more poor air quality days than normal this wildfire season, while our high-impact scenario assumes 20 more poor air quality days than normal,” they wrote. “However, once the wildfire season is over, rebuilding efforts should provide a meaningful but gradual boost to the construction sector.”

The forestry industry has also been directly impacted by the closure of sawmills in hard-hit areas, particularly in Quebec.

One of the most visible impacts is in the sky. Wildfire smoke is causing periods of poor air quality across much of Canada and parts of the U.S. 

“So far, we don’t think this has had a measurable macroeconomic impact,” said researchers. “But, if the wildfires lead to a large number of poor air quality days this summer, outdoor economic activities like recreation travel, tourism and construction could be disrupted.” 

The firm noted that a larger number of poor air quality days could disrupt Canada’s construction sector if labourers aren’t able to work safely outdoors. They noted that a growing body of economic research on the effects of poor air quality and air pollution show the impact on hours worked and productivity, though most focus only on specific sectors and regions and the research techniques used vary considerably. 

In a worse case, should wildfires shut major traffic corridors, cutting off supply lines or disrupting power supply to large population and business centres, the economic consequences could be even more severe, said Oxford.