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OTTAWA — With oil prices tumbling and no solid bottom in sight, economists are shaving their forecasts for Canadian growth and predicting interest rates will stay lower for longer.
While weak energy costs will likely keep inflation in check, the drop in crude to more than five-year lows could also throw the federal government’s budget-balancing plans out the window as revenues shrink.
Combined with the collapse in oil — one of the country’s major exports — the already-weak Canadian dollar is being held down by near-record-low lending levels that are now not expected to begin rising until late this year or early 2016.
“Depending on where the bottom is on oil prices and how long they stay there, it will definitely be a negative on the economy,” said Pedro Antunes, deputy chief economist at the Conference Board of Canada.
“The reality is we’re going to suck out of the economy billions and billions in terms of profits, in terms of revenues,” he said. “There’ll be a big hit right up front.”
U.S. benchmark West Texas Intermediate rallied briefly Wednesday, gaining US72¢ to US$48.65 a barrel, while the Canadian dollar closed up 0.05¢ at US84.60¢.
On the same day, Statistics Canada reported that exporters recorded the biggest drop in shipments in nearly three years — with the energy sector accounting for much of that decline — and widening the country’s trade deficit with the rest of the world in November.
“I think the most concerning in the report is not only oil but the fact that non-commodity exports seems to have peaked in July,” said economist Charles St-Arnaud at Nomura Securities. “Unless we have a rebound in December, net exports could be a drag to growth.”
Economists are already recalibrating their forecasts for this year, with most seeing weaker growth of about 2.2%.
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