According to Statistics Canada, Canada’s natural resource exports (the bulk of which were energy) shot up 3.9% in Q2 2019, contributing to real GDP growth of 0.9% for the quarter. In comparison, the last two quarters saw real GDP growth of 0.1%; coincidentally, Canadian natural resource exports declined during these quarters.
N.B. Valued at $261 billion in nominal GDP, Canada’s natural resources sector makes up 12.2% of the Canadian economy. The lion’s share of this total goes to the energy subsector, which is responsible for 68% (or approximately $177.5 billion) of Canada’s natural resource sector.
Unfortunately, exports aside, the performance of Canada’s energy sector hasn’t been living up to the magnitude of its importance.
Via Financial Post,
“Eight Canadian energy companies were booted out of the S&P/TSX Composite Index on Monday because their market capitalization has dropped below minimum requirements . . .”
Among the removed energy companies (7 of which are based in Calgary) were Precision Drilling Corp. and Ensign Energy Services Inc.—two of Canada’s largest oilpatch drillers.
The Financial Post article goes on to quote Jeremy McCrea, an analyst with Raymond James, who states,
“To raise capital for any energy company here in the last few years has been extremely difficult and this is one more nail in the coffin in their ability to access equity . . .“
A vicious circle is facing Canada’s energy sector, and by extent, its economy; without adequate access to equity, Canadian energy firms are likely to continue to underperform, leading to worsened investor sentiment and subdued GDP growth. For Canada to escape this vicious circle, sentiment around its energy sector will have to improve—but that may be a tall order, especially if energy companies continue to drop out of the TSX Composite Index…