OTTAWA—The contraction of the Canadian economy in the first quarter of the year, lower oil prices, a near-record trade deficit and uncertainty in global markets have dimmed the growth outlook for Canada, the Conference Board of Canada said. The research organization expects the Canadian economy to grow by just 1.6 per cent in 2015, its worst showing since 2009. This represents a further downgrade from previous quarterly Canadian Outlook releases.
“There has been much speculation on whether the Canadian economy has dipped into recession,” said Matthew Stewart, associate director of national forecast at the Conference Board of Canada. “We expect the numbers to show economic growth tracking close to zero in the second quarter, as the economy flirts with recession.”
“But even if Canada slips into mild recession, we expect it to be small and short-lived, with the economy picking up through the rest of the year. There are also positive signs of growth as the economy added 16,000 jobs a month on average over the first half of the year which is better than what we saw through most of 2014,” he added.
The Conference Board said business investment will be the weakest part of the economy this year, held back by deep cuts in the energy sector. Oil and gas firms are expected to chop their investment by almost one-third, plunging from $68.8 billion last year to $52.5 billion this year, the report said. Outside the energy sector, firms remain hesitant to invest. Purchases of machinery and equipment suffered a substantial decline in the first quarter of the year, and a decline in building permits suggests a downturn in commercial construction in 2015. Overall, business investment will drop by close to 7 per cent this year, the outlook claims.
One of the bright spots in the organization’s outlook is the trade sector. Despite disappointing numbers to date, Canada’s trade sector is still expected to make a significant contribution to overall economic growth. The U.S. economy is expected to show momentum through the rest of 2015 and with the Canadian dollar trading well below 80-cents-U.S., exports should manage growth of 3.1 per cent, according to the outlook.
The Conference Board added that economic growth should improve next year. However, with Canada’s potential output growth slowing due to an aging population and lacklustre investment outside of the energy sector, the organization does not foresee real GDP growth exceeding 2.3 per cent at any point over the next five years.