Canada’s finance minister tried to reassure jittery investors on Monday that the country’s books and banks were resilient, after a one-two punch from slowing global economic demand and a collapse in crude prices rattled markets.
His comments came just minutes after Alberta Premier Jason Kenney conceded that his province’s 2020 budget, unveiled less than two weeks ago, is “obviously going to be affected” by the pummelling taken by energy stocks.
“What I want people to know is that we have a very strong fiscal position,” Morneau told reporters on Parliament Hill. “We have a level of debt as a function of our economy that is very low. It provides us with fiscal capacity to deal with challenges.”
Kenney’s budget assumes that a key crude oil benchmark price will “remain flat at $58 a barrel in 2020-21.” Instead, that price, called West Texas Intermediate (WTI), was down over 20 per cent Monday, caught up in a massive selloff that saw trading on the Toronto Stock Exchange temporarily halted to calm panic selling after the largest drop since the late 1980s.
Oil prices took a nosedive on Monday, the worst since 1991. Some large Canadian oilpatch firms posted big declines such as Cenovus Energy, which fell over 50 per cent and Canadian Natural Resources, which dropped almost 30 per cent, as of 4:00 p.m. EDT.
“The coronavirus has caused the global economy to slow down and, with it, demand for energy to decline for the first time in over a decade,” said Kenney. “We are in uncharted territory.”
Kenney had already said last week that he believed every dollar reduction in WTI would take “about $200 million out of provincial revenues." Still, the premier said Monday he expected his budget to pass and the legislature to approve his spending plans.
Hannah McKinnon, energy transitions and futures program director for Oil Change International, said the situation meant that “high-cost producers” that are also wealthy countries, such as Canada, must invest in a just transition for fossil fuel workers.
Canada has “no excuse for missing the plot again on the volatility of global oil markets,” McKinnon said in a statement. “These countries must see the writing on the wall and respond appropriately in an era of global climate emergency. Governments have an urgent responsibility to manage the decline of the sector with a just transition that protects workers, communities, and the climate rather than desperately propping up an industry in terminal decline.”
Crisis calls for ‘just transition’: Oil Change
Monday's market panic is being blamed on a potent cocktail of political and social phenomena that has been brewing for weeks.
Alberta Premier Jason Kenney conceded that his province’s 2020 budget, unveiled less than two weeks ago, is “obviously going to be affected” by the pummelling taken by energy stocks on Monday.
The spread of coronavirus has prompted record-low manufacturing levels in China, and led to travel and tourism restrictions on places like Italy. Fear of contagion is also leading to delays or cancellations of sporting events, music conferences and other large gatherings.
It has all led to a slump in demand for oil for the first time since 2009, said the International Energy Agency. Meanwhile, talks between Russia and the Organization of the Petroleum Exporting Countries (OPEC) over cutting their combined output to reflect lower demand broke down. That means they’ll be competing for market share and are now gearing up to flood the zone with cheap oil.
Morneau said he had been in “extensive discussions” with banking and energy leaders and the provinces, and was “looking at a host of things” to do in response.
“We’re seeing a good deal of anxiety,” he said after markets closed. “We are very focused on dealing with assuring people that we have our health system strong.”
The finance minister would not say when the federal budget would be released, instead noting “it’s important not to think about the budget as an event.”
Freeland floats Employment Insurance changes
Federal health authorities confirmed there are now over 110,000 cases of coronavirus in over 100 countries, including 71 in Canada. The first Canadian to have died in connection with the disease was also announced Monday, a resident of a care home in North Vancouver.
In question period on Monday, the Conservative Party sought to tie the situation to the governing Trudeau Liberals.
“Canada is on the brink of a recession,” Conservative deputy leader Leona Alleslev declared.
“Canadian stocks are crashing with the biggest drop since 1987. … When will this government abandon its failed economic policies and change course?”
Deputy Prime Minister Chrystia Freeland said the Trudeau government was examining the tools it had at its disposal.
“The coronavirus is having a serious impact on the global economy and on the Canadian economy. Canada’s strong fiscal position means we have the firepower to support our economy,” Freeland responded.
She said the government was considering measures such as “supporting workers and parents who have to miss work in order to prevent the spread of the virus, (and) supporting our excellent health care system.”
As one example she pointed to the government’s commitment to extend Employment Insurance sickness benefits to 26 weeks, from 15 weeks, that is part of Employment Minister Carla Qualtrough’s mandate letter.