TORONTO (Reuters) - Bank of Canada Governor Stephen Poloz said recent evidence suggests damage from the oil shock is hitting the economy earlier and spreading faster than anticipated, but that this could also point to an earlier rebound, the Globe and Mail reported on Friday.
In an interview with the newspaper, Poloz said the bank believes first-quarter economic growth could be weaker than the 1.5 percent annualized rate bank anticipated in January, but that second-quarter growth, in turn, would exceed the bank’s identical 1.5 percent projection.
Poloz said the fourth-quarter gross domestic product report, released earlier this week, cemented the bank’s view that the oil-shock effects are working their way into the economy sooner than the bank had expected.
Poloz said that this increasingly front-loaded appearance to the oil shock makes an even stronger argument in favor of the bank’s decision to cut rates in January, rather than, using the January rate decision to forewarn the markets of a cut that then could have then followed in March.
“The more front-loaded it is, the more glad I am that we acted right away, as opposed to waiting,” he said.
He suggested that should the first-quarter numbers be disappointing, his inclination would be to view that as an “earlier” drag from oil, rather than a “bigger” drag.
He said that at some point in the second half of the year, the improving momentum in the non-energy export side of the economy should take over from the oil-related slowdown as the economy’s dominant feature, and the overall theme should again be an economy that is gradually closing its output gap. He noted that the export-oriented side of the economy is growing at an annualized rate of more than 5 percent, double the pace of the overall economy in the fourth quarter.
But the timing of that “crossover” to non-energy exports taking over the country’s economic driver’s seat remains in question, he said.
“By the second half, all of the positives should be dominating,” he said.
“When does the total show a stronger economy, as opposed to a weakening economy? That’s the only question that’s left now.”
Reporting by Jeffrey Hodgson; Editing by Robert Birsel