Lower prices at the pump may come at a high price

Ross Hickey, an economist with UBC Okanagan, said Alberta's recession will have an effect on Kelowna's economy.

Gas prices reached a five year low this week, falling under $1 per litre in the Okanagan, as crude oil values, plunged on weaker global demand and a glut in supply.

While consumers may rejoice at their growing buying power, the change raises questions about how dropping oil prices will affect Alberta’s economy, and in turn the Okanagan’s economy.

Ross Hickey, an economist with UBC  Okanagan, said layoffs in the oil and gas industry of northern Alberta have already started, as scheduled drilling is down for the next two quarters.

“So, there will certainly be a recession in Alberta,” he said, noting that the effect would be felt here in the months to come.

“Firstly, it would be felt in the tourism sector. It’s a big part of our economy in B.C., and in the Southern Interior in particular.”

Hickey explained the first thing people cut when they’re feeling a pinch is their recreational spending. In the case of Albertans, that could mean fewer trips to the Okanagan, which in turn amounts to fewer dollars going to the service sector.

He said it also could have an effect on the housing market, which is oftentimes buoyed by the Albertan economy.

There are two types of Albertan real estate investors—those who own recreational properties and those who call the Okanagan home and travel to Alberta for work.

“So we could expect less investment in that sector,” he said.

Hickey said while it’s important to take every economic forecast with a grain of salt, current predictions on the oil industry don’t have the price on a barrel of oil rebounding until the fall of 2015.

What those who are interested should be looking at now is how the Alberta government responds, Hickey noted.

A quarter of their annual revenue comes from the oil and gas industry, and they may make an attempt to recoup costs by creating a sales tax.

That, he said, could spark some economic activity in B.C., as fewer people would head to Alberta for big purchases.

Another silver lining for the local economy would be that lower gas prices may prompt British Columbians in other regions to travel more, and that could offset some of what’s lost to the Okanagan from the Albertan market.

“People aren’t unresponsive to the price at the pump,” he said.

“But what they do with the extra money, I don’t know.”

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