Canada's economy to bounce out of slump; no more rate cuts due: Reuters poll

Thu Jul 23, 2015 9:57am EDT
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By Anu Bararia and Leah Schnurr

BENGALURU/OTTAWA (Reuters) - The Canadian economy is already bouncing back from a slump in the first half of the year, but it remains vulnerable to further falls in oil prices and any renewed weakness in export demand from the United States, a Reuters poll found.

After the economy contracted in the first three months of the year, the second quarter also got off to a weak start, suggesting Canada, a major oil exporter, may have been in recession in the first half of 2015.

But economists, none of whom predicted such an outcome when polled on the outlook six months ago, forecast gross domestic product is already re-accelerating to a 1.7 percent rate, followed by 2.2 percent in the fourth quarter.

A Reuters poll taken last week after the Bank of Canada shocked markets for a second time this year with an interest rate cut to dull the sting from falling oil prices, this time to 0.50 percent, found that likely will be the floor. [CA/POLL]

Rates are expected to rise late next year, bringing policy in Canada back in line with the U.S., its biggest trading partner. The Federal Reserve is expected to lift rates for the first time in nearly a decade in September. [ECILT/US]

"Until we see a meaningful sign that U.S. growth is really benefiting Canada, the economy is going to be under meaningful pressure," said Benjamin Reitzes, senior economist at BMO Capital Markets.

That may be a tall order, given that there is no major acceleration in U.S. growth forecast on the horizon and any potential perceived benefit from a weaker Canadian dollar may already have taken place.

While a rate hike from the Fed might weaken the loonie further, that will only provide moderate support for the Canadian economy, said Emanuella Enenajor, senior economist at BofA-ML.   Continued...

A man is reflected in a window while walking past the Bank of Canada office in Ottawa, Canada July 16, 2015. REUTERS/Chris Wattie