Why This Winter's Cold Weather Could Add Around 0.3% To GDP Growth


ice bar

REUTERS/Francois Lenoir

Sculptor Jonathan Bouchard of Canada poses near a sculpture at the ice bar of the Brussels Ice Magic Festival.

The prevailing wisdom is that this season's painfully lousy weather has been a drag on the economy, impacting retail sales, manufacturing, and effectively ruining a string of economic data reports.


But maybe it wasn't all so bad.

Another major impact from the cold front has been a spike in natural gas prices, and that rise could, in turn, boost business investment in mining structures, according to Capital Economics' Paul Dales.

"That could add 0.3 percentage points to annual GDP growth, albeit not immediately and not all at once," he writes in a new note to clients.

"There has historically been a close relationship between gas prices and the number of gas rigs in operation," Dales says, acknowledging that the relationship hasn't been quite as close lately due to efficiency gains and the fact that miners are focusing more on drilling for oil.


"A sustained rise in natural gas prices to around $5 should nonetheless trigger a rise in the number of rigs in operation. If the number were to increase from the current 350 to around 1000, that would boost the total number of mining rigs (which includes oil rigs) by 35%," he writes.

Because investment in mining structures makes up 6.6% of business investment and 0.8% of GDP, that would boost business investment by 2% and overall GDP by 0.3%, according to Dales, who says the gains would spread out over a few years.

Check out his charts:

capital economics natty chart

Capital Economics

capital economics chart

Capital Economics