The mammoth northern Alberta wildfire will be “economically devastating” but the province should see a rebound when rebuilding begins, according to a new report from Moody’s.
The paper issued by the credit rating agency Monday says the fire that has forced the evacuation of Fort McMurray will significantly impact both the province’s economy and its finances.
The inferno has already caused an estimated $5-billion in damages, equivalent to 1.5 per cent of Alberta’s gross domestic product, and has caused oilsands production to be significantly curtailed.
The disaster has struck as the province’s economy has already taken a major blow from stagnating oil prices, with the NDP government projecting a second straight year of recession and a record $10.4-billion deficit for 2016-17 in its recent budget.
However, the Moody’s report notes that there are at least some reasons for economic optimism because oil production could come back online relatively quickly and there is a commitment to reconstruction.
“This is an extremely unfortunate time and circumstances for the province” said Moody’s analyst Adam Hardi in an interview Monday.
“It comes at a time when they’re already forecasting one of the largest deficits they have ever forecasted. So it will have some negative impact from that perspective. But we expect it to be temporary.”
“Typically, in these trying times, once the rebuilding starts it typically has a positive boost on the economy.”
Others are gloomier in their outlook however.
Intact Financial Corp. reported Monday it may post losses as high as $1.1 billion because of the disaster, with the insurance company’s chief executive warning the blaze could be a bigger economic blow to Canada than Hurricane Katrina was to the United States.
McMaster University economist Atif Kubursi said the economic shock from the Alberta fire is being underestimated, with consumers likely to feel the brunt of higher insurance costs, taxes and gasoline prices.
In a statement, he said the cost of what doesn’t get done during the rebuilding also needs to be calculated.
“The large sums of money that would be spent on reconstruction and rehabilitation will only serve to restore social and physical capital to what it was before the fire,” said Kubursi. “But these monies could have been spent on building new infrastructure, new capacities and new investments.”
Notley, speaking to reporters in Fort McMurray Monday, said it’s obvious that there will be both a provincial and national economic impact from the fire.
“The extent of that will depend on how long and to what (energy) extent production is disrupted,” said the premier, who will meet with oilsands company CEOs Tuesday.
The fire will also have a significant impact on the provincial government’s bottom line, with the Moody’s report noting the expense will far exceed the $200 million set aside in the budget for “unallocated disaster and emergency assistance.”
Moody’s is one of three agencies that recently downgraded the Alberta government’s former triple-A rating in response to the provincial budget and its lack of a detailed deficit reduction plan.
However, the report said the fire will have only “minimal” credit rating impact on the province and Hardi said the fire should not lead to a further downgrade for the NDP government.
“This fits within the current outlook for the province,” he said.
“If we expected the impact to be permanent, I think that would warrant a move.”
The NDP government maintains it is too soon to say how revenues and expenditures will be affected by the Wildfire.
But certain areas are bound to see major increases in spending, such as firefighting costs. The province put forward a budget estimate for wildfire management of $86.3 million for 2016-17, while actual expenditures last year reached nearly $500 million.
Hardi noted the province is likely to see some reimbursement of its fire-related costs from Ottawa under federal-provincial disaster assistance agreements, though that can take years for the bill to be settled.
In a statement, Finance Minister Joe Ceci said the government is dealing with public safety issues around the fire before turning to fiscal matters.
“We also have mechanisms in place to adjust the budget to address these situations over the course of the fiscal year,” he said.
