Low Oil Prices, Global Economic Uncertainty and Domestic Consumer Debt Worries Canadian Economy

The decline in commodity prices, global economic growth and overstretched Canadian consumers will limit Canada’s real GDP growth to 1.6 percent in 2016, according to The Conference Board of Canada’s Canadian Outlook: Spring 2016.

As quoted in the news release:

HIGHLIGHTS

  • The Canadian economy is forecast to grow by just 1.6 per cent in 2016.
  • The current global forecast is a key concern for Canada as it is expected to hurt Canadian export growth.
  • The decline in energy prices alone has removed more than $50 billion in export revenues from the economy.

The impact of low oil prices is most apparent in investment expenditures, which fell by $17 billion last year. With commodity prices expected to remain low, investment in the energy sector is expected to fall by $11 billion in 2016 and remain flat in 2017. Oil and gas investment is not expected to post any growth until 2018, when oil prices start to reach profitable levels for Canadian companies once again.

Non-energy investment has also been disappointing, and the lack of spending to expand capacity will soon limit the ability of manufacturing firms to increase production—a key factor holding back growth in exports this year.

The tepid global growth this year will also be an impediment to the long-hoped-for acceleration in Canadian export growth. The U.S. economy—the destination for 77 per cent of Canada’s exports—will experience slower growth this year, and this will limit demand for Canadian exports. The eurozone will continue to manage only moderate growth, while the U.K. economy will experience solid but slightly slower growth than last year. At the same time, demand from China is weakening. In sum, Canadian export volumes are forecast to expand at a slightly slower pace than last year, increasing by just 2.7 per cent in 2016.

Click here for the full news release.

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