Conference Board sees more bumps ahead for Canada
Much speculation on whether the Canadian economy has dipped into recession
OT TAWA • The Canadian economy continues to deliver what central bank governor Stephen Poloz has described as “serial disappointment.”
The post-recession road to recovery has been a bumpy one, and it now looks like we could be heading back in that direction.
The Conference Board of Canada on Wednesday forecast economic growth of just 1.6 per cent this year, which the Ottawa-based thinktank said is down from its March estimate of 1.9 per cent. The latest growth outlook is the worst since 2009 — the tail end of the previous downturn — and more disappointment could lie ahead.
Topping the board’s list of suspects dragging down economic activity are the oil-price rout and weak business investment by Canadian companies.
Adding to those worries are plunging stocks and slowing economic growth in China, and the yet-to-be-completed debt rescue for Greece.
Meanwhile, many economists have been disappointed by the pace of the U.S. recovery — the main element required to lift exports from this country — even though that country’s GDP has rebounded from a collapse at the start of 2015.
“There has been much speculation on whether the Canadian economy has dipped into recession,” said Matthew Stewart, associate director, responsible for the national forecast.
“With Canada’s potential output growth slowing due to an aging population and lacklustre investment outside of the energy sector, real GDP growth is not expected to exceed 2.3 per cent at any point over the next five years.”
Poloz, the central bank governor, has acted on his “serial disappointment” concerns by cutting interest rates twice this year. The bank’s key lending level now sits at 0.5 per cent.
The latest hard numbers for Canada will be released Friday by Statistics Canada, with many privatesector analysts forecasting a flat or slight negative reading for May — pointing to a second-consecutive quarter of economic contraction, following a 0.6-per-cent decline from January to March.
April continued the negative GDP pattern, edging down 0.1 per cent. June data is set for release in August. Two consecutive quarterly declines is an initial sign that an economy could be stuck in a recessionary pattern.
Even if Canada slips into mild recession, many expect it to be small and short-lived, with the economy picking up through the rest of the year.
“We expect the numbers to show economic growth tracking close to zero in the second quarter, as the economy flirts with recession,” said Stewart, at the Conference Board.
“But even if Canada slips into mild recession, we expect it to be small and short-lived, with the economy picking up through the rest of the year.”
The board notes points to “positive signs of growth, as the economy added 16,000 jobs a month on average over the first half of the year, which is better than what we saw through most of 2014.”
Still, business investment “will be the weakest part of the economy this year, held back by deep cuts in the energy sector.”
“Oil and gas firms are expected to chop their investment by almost one-third, plunging from $68.8 billion last year to $52.5 billion this year. Outside the energy sector, firms remain hesitant to invest.”