NATIONWIDE PAIN
All of Canada feeling oilpatch problems: BoC
OTTAWA
The hit from low oil prices in Western Canada will reverberate across the national economy — but they should have less crosscountry bite than the crisis of 2015, the head of the Bank of Canada said Thursday.
The 2015 oil-price crash contributed at the time to a slight, technical recession and prompted the central bank to cut interest rates to boost Canada’s economy — twice.
Even with the latest collapse in oil prices, governor Stephen Poloz insisted Thursday that he expects interest-rate hikes will still be needed over time. The central bank has been gradually raising rates for more than a year, thanks to the stronger economy.
The arrival, however, of future rate increases will likely be more gradual than many observers had predicted just a few days ago. Market watchers, many of whom had expected the bank to increase the rate again in January, are now predicting a slower pace following the concerns expressed by Poloz in recent days regarding recent economic developments.
On Wednesday, the bank left the rate unchanged at 1.75 per cent as it underlined fresh negatives, such as the recent drop in oil prices.
In explaining the rate decision Thursday, Poloz appeared less inclined to make a move any time soon.
“The current level of interest rates remains appropriate for the time being,” Poloz said Thursday in a speech at an event hosted by CFA Society Toronto.
“We continue to judge that the policy interest rate will need to rise... The pace at which this process occurs, of course, will remain decidedly data dependent.”
The bank said Wednesday the timing of future increases will now depend on several factors — the persistence of the crude slump, the ability of corporate investment to pick up its pace and how much room the overall economy still has left to grow without stoking inflation.
The bank raised its key interest rate target at its October meeting — its fifth increase since the summer of 2017. But much has changed in just six weeks. In the speech Thursday, Poloz said the data since October has been “on the disappointing side” and that the economy has less momentum heading into the final three months of 2018 than the bank believed it would.
Poloz pointed to an unexpected decline in business investment over the summer as a key development — but he said the dive in oil prices has been the most-important “new shock.”
“It is already clear that a painful adjustment is developing for Western Canada, and there will be a meaningful impact on the Canadian macroeconomy,” he said.
“That said, given the consolidation that has taken place in the energy sector since 2014, the net effects of lower oil prices on the Canadian economy as a whole, dollar for dollar, should be smaller than they were in 2015.”
He said oil and gas production now makes up just 3.5 per cent of Canada’s economy, compared with six per cent in 2014. In the years that have followed the last slump, the sector has adjusted its cost structures, wages and employment levels, Poloz said.