(Reuters) - Canada’s resource-dependent economy will reel from the sting of a slump in oil prices until mid-2015 at least, when exporters may start to benefit from stronger U.S. growth and a weaker Canadian dollar, according to the top forecaster for the Canadian economy in Reuters polls in 2014.
Brent crude prices LCOc1 halved between June 2014 and mid-January amid a global supply glut and weak demand. That has already started to hurt Alberta, the main oil producing province, with job losses, falling home sales and business investment.
Although oil prices have begun to rebound, there is still more damage in store, according to JPMorgan’s Canada economist Silvana Dimino, who topped the Reuters economic poll accuracy league for 2014, compiled by StarMine.
“We expect (oil) prices to remain pretty weak at least until March. As long as you have uncertainty around oil prices, business investment is going to be weak,” said Dimino.
She expects economic growth to average 2.1 percent this year on an annualized basis, scaled down from the 2.4 percent she had forecast in a poll last month.
A sharper slowdown in growth could prompt the Bank of Canada to cut rates by another 25 basis points in March, Dimino said, after the central bank trumped all economists’ predictions with a surprise rate cut at the January meeting.
Governor Stephen Poloz said on Wednesday the bank had taken the right amount of insurance with its January rate cut, a remark that prompted several economists to ditch predictions for another rate cut in March.
Before that move, the Bank of Canada, U.S. Federal Reserve and the Bank of England were the only major central banks expected to raise rates any time soon.
Still, Canada’s economy is expected to improve toward the end of the year as exports start to pick up, she said.
Canadian policymakers have long hoped a significant pick up in exports will replace household spending as the main driver of economic growth, especially with household debt at record highs and the risk of a sharp fall in record-high home prices.
“We don’t really have a lot of consumption-driven growth in 2015 ... expectations have really taken a nosedive,” Dimino said.
While the average home price in Canada has nearly doubled over the past decade, many analysts have been concerned that prices are overvalued and a steep fall is imminent.
Cheaper oil has only exacerbated risks that the market is due for a correction, a recent Reuters poll showed.
Dimino says the number of high rises being built in Toronto, Canada’s financial capital, is proof there’s no sign of a slump in demand.
The rankings of economists according to the accuracy of their forecasts, compiled by StarMine, are based on each firm’s estimates for key economic indicators in 2014.
Reporting by Deepti Govind; Editing by Bernadette Baum