Recession fears are dampened however
The contraction of the Canadian economy in the first quarter of the year, lower oil prices, a near-record trade deficit and uncertainty in global markets have dimmed the growth outlook for Canada. The Conference Board of Canada expects the Canadian economy to grow by just 1.6 per cent in 2015, its worst showing since 2009. This represents a further downgrade from previous quarterly Canadian Outlook releases.
- The Conference Board of Canada expects the Canadian economy to grow by just 1.6 per cent in 2015.
- A drop of 15.5 per cent in business investment in the first quarter of this year was a major factor in tipping the Canadian economy into a small contraction.
- Renewed economic growth is expected through the second half of the year.
“There has been much speculation on whether the Canadian economy has dipped into recession,” said Matthew Stewart, Associate Director, National Forecast, The Conference Board of Canada. “We expect the numbers to show economic growth tracking close to zero in the second quarter, as the economy flirts with recession. 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. There are also 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.”
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. Purchases of machinery and equipment suffered a substantial decline in the first quarter of the year, and a decline in building permits suggests a downturn in commercial construction in 2015. Overall, business investment will drop by close to 7 per cent this year.
Household spending is also expected to weaken, despite savings for consumers at the gas pump and federal tax cuts. Soft employment growth, weak wage gains, high level of
household debt and job losses in oil producing provinces will combine to limit growth in consumer spending to 2.1 per cent in 2015.
One of the bright spots in our outlook is the trade sector. Despite disappointing numbers to date, Canada’s trade sector is still expected to make a significant contribution to overall economy growth. The U.S. economy is expected to show momentum through the rest of 2015 and with the Canadian dollar trading well below 80-cents-U.S., exports should manage growth of 3.1 per cent.
Economic growth should improve next year. However, 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.