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

Mon Jan 25, 2016 3:32pm EST
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* No easy exit from economic slump for Canada's prime minister

* Worrying parallel decline in oil prices and Canadian dollar

By Andrea Hopkins and Jeffrey Hodgson

TORONTO, Jan 25 (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.   Continued...