October 22, 2015 / 10:35 PM / in 2 years

Fiscal stimulus plan not enough to boost Canada 2016 GDP: Reuters poll

(Reuters) - Canada’s economic growth will not receive a major boost next year from the newly elected Liberal government’s fiscal stimulus plan, because of lingering uncertainty about oil prices and demand for Canadian exports, a Reuters poll released on Thursday showed.

Canada's Liberal leader and Prime Minister-designate Justin Trudeau leaves at the conclusion of a news conference in Ottawa, Ontario, October 20, 2015. REUTERS/Chris Wattie

A majority of around 30 forecasters, surveyed after the Bank of Canada left policy unchanged on Wednesday, said they have not revised their 2016 predictions and were not considering doing so.

Prime Minister-designate Justin Trudeau, who swooped to power in a landslide election victory on Monday, has proposed running an annual budget deficit of up to C$10 billion ($7.63 billion) for three years to invest in infrastructure and boost Canada’s anemic economic growth.

However, many economists surveyed said they were waiting for Trudeau’s policies to be implemented before revisiting forecasts.

After almost a decade of Conservative Party rule, economists said if they were to revise growth forecasts, the more likely move would be upward.

Canada experienced one of its slowest periods of growth in recent decades under the Conservatives, punctuated by the global credit crisis. Canada, the world’s 11th largest economy, slipped into a mild recession in the first half of this year as oil prices tumbled.

Still, economists said a change in government does not mean that economic challenges have disappeared.

“To say, ‘Oh now things will be better because of Liberals rather than Conservatives’ would be more of a political hope than economic judgment,” said Mark Hopkins, senior economist at Moody’s Analytics.

Hopkins, nonetheless, was optimistic about the focus on infrastructure investment rather than the emphasis on the oil industry under the Conservatives.

Bank of Canada Governor Stephen Poloz is looking to non-energy exports to help the economy regain momentum.

In a separate Reuters poll earlier this month, economists agreed with Poloz’s view the economy would rebound from the recession, but not by enough to warrant an interest rate rise before early 2017. [ECILT/CA]

The Bank on Wednesday cut its growth forecast in October. Speaking to the press after the rate decision, Poloz said the impact of the Liberal fiscal stimulus plan depends on the actual follow-through.

“The U.S. impact and the oil price story matters more,” said David Tulk, chief Canada strategist at TD Securities.

“The consumer sector is looking a little bit fatigued and they got an extra lift from the fiscal side of the spending, but to get growth on a more sustained basis, it has to be driven by external factors such as exports and business investment.”

Canada’s central bank is largely expected to hike rates in 2017. But once the U.S. Federal Reserve tightens its policy, possibly as early as this year, the Bank of Canada will be under pressure to follow suit, some economists said.

“Once the Fed funds rate starts to get above half a percentage point, there is going to be pressure to match it. The (Canadian) economy will have picked up by that time enough that there would be a justification,” said Moody’s Hopkins.

Polling by Krishna Eluri, Hari Kishan and Deepti Govind; Editing by Jeffrey Hodgson and Richard Chang

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