(Reuters) - The collapse in oil prices is not yet expected to hold back Canada’s resource-dependent economy by much over the next year, according to economists in a Reuters poll, but it might prevent the central bank from hiking rates.
Brent crude prices have crashed over 60 percent since June, but with some predicting a rebound later this year, economists only trimmed growth predictions.
“Oil and gas sectors account for roughly a quarter of the overall capital expenditures in Canada, a sizeable chunk. This should be pulling the headline GDP growth (down),” said Mazen Issa, senior Canada macro strategist at TD Securities.
Still, he expects the decline in oil prices to only lop between 0.1 percent and 0.3 percent from economic growth on an annual basis. And the consensus view suggests most forecasters in the poll have a similar view.
The survey of 30 analysts, taken this week, predicted the economy would grow 2.4 percent this year and 2.3 percent next.
Those medians are just a percentage point lower than October’s predictions and not too far from April’s 2.6 percent and 2.7 percent, although most expressed concern over oil prices.
“The fall in oil is undisputedly negative for Canada’s economy,” economists at Morgan Stanley wrote in a report. The bank forecasts growth at 1.8 percent this year, the most pessimistic in the survey.
Morgan Stanley said lower oil prices would drive the Bank of Canada (BOC) to cut its own growth forecasts when it releases its Monetary Policy Review next Wednesday. That in turn may lead markets to push their rate hike expectations into 2017.
But most forecasters in the poll continue to predict a hike in the fourth quarter, despite inflation expected to average 1.3 percent this year, down from the 1.9 percent forecast three months ago and nowhere near the BOC’s 2 percent target.
Falling oil prices are unlikely to spare Canada’s commodity-sensitive currency, which has already tumbled nearly 11 percent against the greenback in the past five months.
A Reuters poll last month predicted investors will dump Canadian stocks and the currency’s losing streak will continue, especially if the U.S. Federal Reserve hikes rates in the second quarter. [EPOLL/CA] [CAD/POLL] [ECILT/US]
Canada’s inflated housing market is unlikely to help, with most economists in the survey expressing some degree of concern that after nearly doubling in value over the past 11 years, average home prices could fall sharply.
This would, in turn, hurt consumers, who hold debt worth over 1.5 times their income and have been one of the biggest drivers of economic growth since the financial crisis.
“They (the BOC) don’t want to push household debt any further or boost housing any further. They don’t want to add any fuel to the fire,” said Benjamin Reitzes, senior economist at BMO Capital Markets.
Additional reporting Leah Schnurr in Ottawa; polling by Anu Bararia