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OTTAWA — The Bank of Canada is acknowledging for the first time that the world may be facing a prolonged oil-price slump, casting a dark shadow over the country’s economic prospects.
The price of crude, already sliced in half since the summer, could fall further and stay low for a “significant period,” deputy governor Timothy Lane warned in a speech Tuesday.
That could have profound and far-reaching implications for the Canadian economy, including putting more cash in the hands of consumers and exporters. But cheap crude is also likely to sap overall growth, send the dollar lower, dent federal and provincial government revenues, and perhaps delay eventual interest-rate hikes.
The bank’s comments come as private-sector economists are making increasingly bold claims that the federal government is at risk of missing its target for a return to fiscal balance this year.
The latest challenge to the key Conservative promise came in a Toronto-Dominion Bank report that said Ottawa will be in deficit two years longer than planned even if oil prices rebound significantly from current lows. The price of U.S. crude slumped to a six-year low of $45.89 (U.S.) Tuesday.
The report projected two additional years of budget deficits due to lower oil and the fact that the government announced tax cuts in the fall that will reduce federal revenues by nearly $27-billion over the next five years. The package of tax cuts includes allowing couples with children to split income for tax purposes, a controversial policy that Prime Minister Stephen Harper announced in October even though his party had previously said it would delay the cut until after it erased the deficit.
Speaking in Edmonton, Alberta Premier Jim Prentice rejected suggestions the oil-rich province is headed for recession, but said a provincial sales tax was up for discussion amid the worst budget squeeze in a generation.
Suncor Energy Inc., Canada’s largest oil-sands company, said Tuesday it is cutting $1-billion from its capital spending program as it defers work on some of its projects. Suncor is also shedding about 1,000 jobs.
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