Could Oil Price Rise Save Canada From Recession?

CANADA is heading straight for a recession, if it isn't in one already. That's the probability painted by Statistics Canada, the government statistical bureau. But economists say the spike in oil prices could ease a slump, or at least speed up recovery from a recession.

Statistics Canada's gloom arises from a decline in its composite indicator of 0.4 percent in May, the fourth consecutive monthly drop. The indicator combines 10 measures of economic activity from furniture sales to stock prices. Statistics Canada notes that the six recessions since 1952 were all marked by four consecutive monthly declines in the composite indicator as well as by declines in national output.

``We're probably in the first quarter of a recession right now,'' says Douglas Peters, senior vice-president and chief economist of the Toronto Dominion Bank. Until last week he had been predicting a mild recession. ``But if we get $30-a-barrel oil prices, we're in for more than a mild recession.''

Mr. Peters says higher oil prices would hurt Canada's big customers, the United States, Japan and Europe. As a natural resource producer, the country's lumber, pulp and paper, aluminum, and other material producers would suffer. The only winner would be oil and gas.

Canada is a net exporter of oil and gas. It imports oil for eastern Canada but supplies all its own needs in central and western Canada. Natural gas from Alberta is shipped by pipeline to markets as far away as Quebec. In the 1970s and early '80s the federal government paid consumers to switch to natural gas from oil for heating houses. In Quebec, Manitoba, and British Columbia, three big hydroelectric producing provinces, many people heat with electricity. A sharp rise in oil prices would have less domestic effect than in say the United States or Japan.

Sustained higher oil prices would mean more exploration and development activity, which could moderate the recession. ``Oil exploration would take off in Alberta and Hibernia [a field off the coast of Newfoundland] and the tar sands [in Alberta] would be more feasible,'' says economist Peters.

``Those projects were shelved at $17 oil, but at $27 it is another story,'' says Peter Pullam, head of the Burns Fry Ltd. energy group in Calgary.

``This year's budgets are set,'' he notes. ``But these higher prices will mean more drilling activity in 1991. These oil prices may be bad news for the rest of the world, but they're good news for western Canada.''

Some energy analysts feel the oil prices may not stay this high. ``When the dust settles in the middle east, we could see prices in the low to mid 20s and that will be good news for Alberta, and to come extent Saskatchewan and British Columbia,'' says Richard Wyman, energy analyst with Peter & Co. Ltd. in Calgary.

More bad news followed the Statistics Canada report. Corporate profits were down by 33 percent, the second consecutive quarter of losses.

There have been other predictions of a recession this year, but so far there have not been two quarters of negative growth, the textbook definition of a recession. ``It's not perfectly clear we're in a recession yet,'' says William Watson, an economist at McGill University in Montreal. ``Unemployment is still only 7.5 percent and that is just one point below what the government was predicting for this year.'' In the 1981-82 recession, unemployment in Canada reached 12 percent, the worst level since the Great Depression.

While Canada was hit harder than other industrial nations in the 1981-82 recession, that won't be the case if higher oil prices prompt a worldwide slowdown. ``Higher oil prices will help us locally,'' says Mr. Watson. ``Alberta [Canada's oil producing province] is certainly looking better than it did six months ago.''