Every field has self-serve tools for use by the layman seeking general understanding.
Meteorologists offer radar and satellite maps we can use for preparing for the weather. Thermometers, heart rate monitors and blood pressure kits abound for gauging health and fitness. And economists put forth the Gross Domestic Product (GDP) for assessing regional and national economies.
Gross Domestic Product
The GDP indicator represents the total value of the goods and services produced over a given time (regarded as the size of an economy).
In Canada’s energy debate, the GDP indicator often gets invoked in attempts to quantify the contribution of oil sands and other energy development to the country’s economy.
Though a GDP statistic satiates many in the mainstream, economists know it has its limitations when trying to determine what makes an economy tick.
One thing GDP doesn’t tell you is what an economy is based on. For example, Canada’s health care system is a much larger share of GDP than Canada’s energy sector, even though it can’t sustain itself independently of public funding. Similarly, housing construction and retail spending are bigger shares of GDP but each of these sectors relies on people spending money earned at jobs in other sectors.
Merchandise trade activity
Merchandise trade activity is another indicator economists use in assessing a sector’s contribution to an economy. It shows the types, volumes and value of goods and services being imported and exported as part of an economy.
Understanding what goods and services are exported illuminates the foundations of an economy. After all, exports generate taxes and royalties which governments use to fund public infrastructure, such as hospitals, roads and schools. Exports also generate employee income which allows people to buy houses, goods and services.
Energy trade surplus
Looking at Canada’s latest merchandise trade report from July 2014, it’s clear the energy industry is foundational to the country’s economy. The trade surplus for energy was $8 billion (almost double the combined surplus for all other categories), with crude oil and bitumen making up $6.7 billion of this surplus. Without energy, Canada would have had a $4.1 billion trade deficit that month.
At $48 billion annually, the value of Canada’s energy exports roughly equals that needed to pay for half of Canada’s health care system.
Merchandise trade activity won’t likely supplant the GDP indicator in mainstream circles, but it does provide useful insights when looking under the hood of Canada’s economy.