Canadian economic growth seen sluggish despite fiscal stimulus: poll

Thu Oct 13, 2016 10:47am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Anu Bararia

(Reuters) - A quarter of analysts polled by Reuters pared back Canadian economic growth forecasts for this year and next compared with three months ago, saying subdued energy prices and soft U.S. demand will dampen the boost from expected fiscal stimulus.

The Bank of Canada is therefore likely to keep interest rates at low levels for even longer than thought to support the economy, with analysts pushing out their expectations for a rate hike to the second quarter of 2018.

Hurt by a drop in exports and a disruption in oil production caused by wildfires in Alberta, the economy shrank in the second quarter at the steepest rate since the global financial crisis.

Although the economy is expected to have recouped robustly in the third quarter, analysts in the poll of over 40 respondents said the strong pace of its rebound will not carry through to the remainder of the year.

The price of oil, a key Canadian export, is still down over 50 percent from its mid-2014 high of $116 a barrel, while demand for the country's other exports remains tepid due to weak U.S. intake.

Bank of Canada Governor Stephen Poloz has pinned hopes on a non-energy export-led rebound in Canada, thinking that a combination of a weaker currency and stronger U.S. demand would make a potent mix.

Although the U.S. economy seems on a stronger footing now, uncertainty around the upcoming presidential election and the timing of the next Federal Reserve rate hike could continue to weigh on demand for Canadian exports, despite a weak domestic currency.

The poll forecast Canadian economic growth at 1.2 percent this year, short of the bank's 1.3 percent estimate, and at 2.0 percent in 2017, versus the bank's 2.2 percent prediction and July poll's median consensus of 2.1 percent.   Continued...

A woman passes a condominium construction site on what used to be a neighborhood of single family homes in Toronto, Ontario, Canada October 3, 2016. REUTERS/Chris Helgren