Trudeau's Canadian honeymoon cut short by oil crash, economic woes

Mon Jan 25, 2016 3:40pm EST
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By Andrea Hopkins and Jeffrey Hodgson

TORONTO (Reuters) - With growth fading, oil prices in freefall and a currency having touched a 12-year low, Canada’s new Prime Minister Justin Trudeau faces an early end to his political honeymoon, confronted by an economic slump with no easy exit.

While voracious demand from China for its commodities helped Canada escape the worst of the 2008 financial crisis, the communist-run country's diminished appetite and a global oil glut have turned into a massive headwind for Canada.

The parallel decline of oil prices and the Canadian dollar, which the central bank governor describes as following each other like "railroad tracks”, is bringing both economic and political pain.

With a comfortable majority from last October's election, Trudeau's Liberal government will have no problem passing laws in Parliament.

But his political capital will melt away quickly if he mishandles his first major test over the economy. It would damage provincial allies and the Liberal party's prospects in the 2019 election.

Trudeau, 44, branded as a lightweight by opponents in last year's campaign, will have to ensure that the oil shock does not trigger vulnerabilities such as Canada's record high household debt levels and long-in-the-tooth housing boom, creating vicious cycle of job losses and further weakness.

At the World Economic Forum in Davos, Switzerland last week, Trudeau was asked at one press conference about what he was accomplishing at parties with celebrities Kevin Spacey and Bono when many Canadians are unemployed or fearful about their jobs.

"My encouragement of CEOs and investors to think about Canada when they make investments is something I know is going to resonate in the coming months," Trudeau said on Friday.   Continued...

Canadian Prime Minister Justin Trudeau arrives to speak about a Saskatchewan school shooting during a news conference in Davos, January 22, 2016.   REUTERS/Ruben Sprich