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The invasion of Ukraine and sanctions against Russia have
disrupted global energy and other commodity markets and exacerbated
tensions in global supply chains.
These and other effects of the war are pushing up inflation,
dampening global growth, and raising risks of recession most
acutely in Europe that is directly exposed to the conflict and that
is highly dependent on Russia for its energy and other critical
Recent developments have served as a terse reminder of the
vulnerability of economies to the control of critical commodities
by one or few producers that are not committed to a peaceful global
order and to high standards of market conduct.
Like Europe, North America is experiencing higher inflation,
moderating growth, and a tense geopolitical environment. However,
there is modest direct exposure to Russia and Ukraine.
For Canada, there are positive offsets to high input costs
through higher prices for our exports. Earnings from oil and gas,
cereals, fertilizers, minerals, and forest products have improved
markedly, raising national income and aiding the improvement of the
fiscal balances of government.
In the current context, Canada is in a position not only to earn
higher prices for its resources but to also to be part of the
solution to the search by key partners of stable, secure, and
responsible supply of energy, food, minerals, and forest
To date, there has been little reinvestment of the higher export
earnings into productive capacity to realize long-term benefits.
Infrastructure constraints and an uncertain policy environment are
among key factors that are holding back investment. Thus, the
overall impact of high commodity prices on the growth outlook for
Canada may be muted.
The future path of commodity prices is uncertain. Moreover, in
the best of cases, there will be limits to Canada’s ability to
fill global supply gaps or to displace supplies from less reliable
producers. Market and policy conditions will be different across
Nonetheless, there should be collaborative business and
government efforts to utilize fully existing supply capacity and
infrastructure, to unlock any potential increment in the short
term, to capitalize on market demand and to invest proceeds in
productivity enhancement and decarbonization for long-term
sustainability and competitiveness.
Recognizing long project lead-times, large costs, uncertainty,
and risks, investment in new supply capacity should be
driven by the structural trends that will shape demand and prices,
supported by a policy framework that must also be responsive to
Absent a focus on investment, and calculated risk taking, the
higher export earnings will flow largely to consumption. Canada
will not sustain the positive contribution of its resource
endowment to the economy and it will fail to lay critical
groundwork for long-term prosperity.
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