Oil to drag on Canada economy but no recession or rate cut: poll

Thu Jan 14, 2016 9:28am EST
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By Anu Bararia

(Reuters) - Stubbornly low oil prices will weigh on the Canadian economy in 2016, but no recession or further interest rate cut by the Bank of Canada are expected this year, a Reuters poll found.

The survey of more than 40 analysts showed Canada's economy is forecast to grow 1.8 percent this year and 2.2 percent the next, a slight downgrade from the 2.0 percent forecast for 2016 in October's poll.

That also is much lower than the United States, which is expected to grow 2.5 percent and has already begun hiking rates.

But with oil prices continuing to drop and no prospect of a strong rebound any time soon, some also see a risk that the Canadian economy could fall back into recession for the second time in as many years.

The fiscal stimulus plan proposed by the newly elected Liberal government is also unlikely to boost economic growth much.

The poll put a median 35 percent probability the economy slips back into a slump this year. Forecasts ran from a low of 15 percent to as high as 75 percent.

"We expect an acceleration from last year but only a pretty modest one," said Andrew Grantham, senior economist at CIBC, adding that the economy will grow fairly below the "pace that we had been accustomed to before the oil price shock in mid-2014."

The price of oil, a major Canadian export, has plunged more than 70 percent since mid-2014 to near $30 a barrel. It is expected to remain depressed through the year.   Continued...

A gas nozzle is used to pump petrol at a station in New York February 22, 2011. 
REUTERS/Shannon Stapleton