Canada’s economy would be overwhelmed by massive quake: report

VANCOUVER (NEWS 1130) – As we watch Japan and New Zealand react to the latest large earthquakes to hit yesterday, a new report finds a massive quake off Canada’s West Coast would devastate the country’s economy for years.

The Conference Board of Canada predicts a magnitude 9.0 shaker could cause up to 15,000 deaths and result in $127 billion in total economic losses, starting with the failure of country’s insurance industry.

“After a catastrophic event like this, the first thing you see is major losses in terms of infrastructure, in terms of business productive capital and in terms of homes, residential assets and, of course, lives lost,” explains the board’s Deputy Chief Economist Pedro Antunes. “What we focused on was the economic repercussions moving forward, especially when we stress the insurance industry and get into insolvencies and further economic costs because of that financial contagion.”

The report finds a big enough earthquake would overwhelm the Canadian economy, delaying rebuilding and resulting in additional long-term economic loss. “Currently the insurance system is set up in such a way that if one insurance company fails, the other companies will come in and cover those claims. It’s a great system to protect consumers, but the problem is that the industry is only capitalized to handle losses up to $30 or $35 billion. The impact of a massive earthquake would be around $42 billion,” explains Antunes.

That would cause a cascade of insurance company failures that would send waves through the rest of the economy. “It would now take much longer for the rebuilding process to get into place and, when we look at this over a decade or longer, we see these repercussions really costing a huge amount to the Canadian economy.”

The Conference Board estimates the earthquake and fallout from financial contagion would reduce real gross domestic product by $100 billion and cost an estimated 437,000 person-years of employment — equivalent to the loss of 43,700 jobs over a 10-year period.

The report also concludes reduced revenues and increased government spending would add $122 billion in new public debt for federal and provincial governments. “This is a rare event and we are not trying to worry people, but if we are prepared for an earthquake like this, we can mitigate many of the financial risks,” adds Antunes.

The Conference Board is recommending a government-backed deposit insurance system that would “backstop” the industry and prevent a ripple effect through the economy. “This is a system we see in other industries that have very expensive risks associated with them, at very low probabilities. For example, in nuclear, in the oil and gas industry and in banking as well,” says Antunes.

The report points out there is a 30 per cent chance a significant earthquake will hit Western Canada over the next 50 years and a five to 15 per cent chance for Eastern Canada.