The effect of last week’s massive power on the Canadian national economy will be transitory and short lived, Standard & Poor’s Ratings Services said Tuesday.

An economic recovery, which is already under way, is still expected to gain momentum by year-end.

“Although 40% of the national economy was taken offline for a day by the blackout in Ontario, the movement of people was quick to resume and this will help to minimize the negative macroeconomic effects,” said Standard & Poor’s credit analyst Robert Palombi.

“There have been no major supply chain disruptions as a consequence of the blackout.” The auto sector, for example, has cut production schedules in response to the need for conservation until power generation is restored to full capacity. But this comes at a time when the car companies had already been curtailing production in response to a buildup of inventories in the first half of 2003.

“In other areas of the economy as well, any temporary disruption to production schedules should have a negligible effect, as inventory levels are sufficient to meet consumer demand,” said Palombi.

“Moreover, power system protection mechanisms, which prevented the blackout from damaging power generation and transmission infrastructure, have helped to buoy household, as well as business, confidence. As a consequence, the movement of people, goods, and services in the economy will normalize once emergency conservation efforts ease and power generation is restored to preblackout levels.”

According to. Palombi, the temporary disruption to the economy caused by conservation efforts is not expected to last more than a week.

Turning to specific sectors, S&P says that the blackout will not precipitate immediate ratings actions on the companies that it rates in the Ontario electricity sector. The four integrated oil and gas companies rated by Standard & Poor’s all had refineries that were affected by the power outage; however, it does not expect the resulting capacity shortfall will have a meaningful impact on any of the companies’ credit profiles. Miners were also hit, but not in a big way. The firm says much the same thing about the travel, lodging, telecom, media and paper businesses.

Retailers were probably most affected by the disruption. “After having experienced a year that has seen the outbreak of BSE in Alberta, as well as two separate outbreaks of SARS in Ontario, Canadian retailers have become acclimatized to major disruptions and have remained quite resilient,” said Standard & Poor’s credit analyst Don Povilaitis. ‘Moreover, given that this power shortage occurred in summer and not winter, as was the case with Quebec and Eastern Ontario’s infamous ice storm, from a purely logistical perspective, prospects for a quick recovery are brighter. Retailers are much more adept today at managing their vast distribution networks, and are often able to access backup, nongrid electricity to power their distribution centers.”

The rating agency also says that the blackout is expected to have a minimal impact on the Canadian property and casualty insurance sector. No ratings actions are expected to transpire as a result of this event. “Given the short duration of the event, and the likelihood that this event was not the result of an ‘Act of God,’ business-interruption damage is expected to be limited,” said Standard & Poor’s credit analyst Donald Chu. “Most claims are expected to come from business interruption coverage, as manufacturing facilities, hotels, restaurants, and other food service businesses were shut down. Food spoilage could have been a potential homeowner complaint, but claims are expected to be immaterial given the impact of the insurance deductible.”