Canada able to weather ‘oil-price storm’ this year
Experts predict economy, jobs and income will improve in second half
A snapshot of the global economy in 2015 could look an awful lot like last year’s picture — but with a slightly more positive outlook.
The focus will remain sharply on the disruption to oil markets, and that should continue during the next year.
But the impact of the price shock will also provide an “income transfer from producers to consumers” in the United States,” TD Economics predicts in a series of reports released Tuesday.
“This will benefit not only America, but also the rest of the world.”
For Canada — which still counts on the world’s largest economy to generate most of its export dollars — economic output, personal income and employment growth will gradually improve in the second half of 2015, along with a mild recovery in oil prices, according to TD Economics.
“As a result, we anticipate that the Canadian economy will weather the current oil-price storm,” with the added benefit of a “modest acceleration” in other major economies, although emerging markets — most importantly China, the world’s No. 2 growth engine — will face slower growth.
TD estimates gross domestics product will expand 1.9 per cent this year, compared with 2.5 per cent in 2014. The first quarter of 2015 will be especially weak — at an annualized pace of just 0.5 per cent, down from the bank’s one per cent forecast in January — but each quarter will improve after that. Overall GDP growth in 2016 will be 2.2 per cent, it said, unchanged from the previous estimate.
“This will weigh on government coffers, particularly those of the federal government and governments in oil-rich provinces. Consequently, some governments have already announced their intention to pull back on planned spending,” it said.
“After reaching a peak of nearly $110 US per barrel in June 2014, WTI crude oil prices have fallen to around $45 per barrel, and remain volatile and reactionary ... We believe prices could follow another leg downward towards the $40mark over the coming months, before recovering to around $65 per barrel on average in 2016.”
The price of oil, of course, has been a major concern for the Bank of Canada.
In January, monetary policymakers shocked markets by cutting their key lending rate to 0.75 per cent from one per cent, a level that had been untouched since September 2010 as part of the central bank’s post-recession stimulus efforts.
“With the Canadian economy subject to these cross-currents, and little new data pointing to a broad departure from the Bank of Canada’s most recent forecast, we expect that the bank will keep interest rates on hold until the end of 2016,” TD said.
“This is good news for the Canadian housing market and households more broadly.”
Meanwhile, the report forecast Canada’s unemployment rate could reach seven per cent by the end of 2015, before easing to 6.7 per cent a year later. By comparison, the jobless rate was 6.8 per cent in February of this year, the most recent data available.
“Partly reflecting weak profit margins, businesses will likely strive to boost productivity. With gains in the labour force still likely to be constrained by an aging population, the jobless rate is likely to remain close to seven per cent over the next few years,” TD said.
In its U.S. outlook, also released Tuesday, the bank said the economy “is in an enviable position relative to much of the rest of the world.”
“At the end of the day, the decline in energy prices is an income transfer from producers to consumers, and America has many more of the latter than the former,” TD said.
“This will benefit not only America, but also the rest of the world.”
At the end of the day, the decline in energy prices is an income transfer from producers to consumers.