The Conference Board of Canada is downgrading its 2016 growth forecast for the Canadian economy as it continues to suffer from the further deterioration in oil prices, the Ottawa-based think tank announced on Thursday.
The Conference Board’s Canadian Outlook: Winter 2016 estimates that the economy grew by 1.2% in 2015 and is forecast to grow by just 1.7% in 2016.
“Although much of the recent weakness was contained to the energy sector, other areas of the economy, such as household spending, exports and manufacturing have failed to pick up the slack,” says Matthew Stewart, associate director, national forecast, in a statement.
“Stronger economic growth will not happen until next year, when a recovery in the non-energy sector is finally expected to take hold,” he adds.
World oil prices are expected to increase from their January average of less than US$30 a barrel, the Conference Board’s outlook says, mainly because of cuts in U.S. production expected this year.
However, with inventories continuing to rise, world oil prices are not forecast to exceed $40 this year. Given the persistently low prices, oil firms are expected to cut their real capital spending budgets by 16% in 2016 following a 24% reduction last year, the outlook says.
Falling business investment will not be contained to the energy sector, according to the Conference Board outlook: “Building construction is expected to decline this year due to sluggish demand and rising vacancy rates. At the same time, machinery and equipment spending has been hampered by weak business confidence, sluggish global growth and the impact of a weak loonie on businesses’ ability to purchase foreign machinery. In all, real business investment is expected to fall by 2.4% in 2016.”
Consumer spending, which has been one of the main drivers of economic growth over the last several years, is expected to rise by 1.9% this year, the outlook says.
High hopes continue to be placed on the trade sector to fuel Canada’s economy, the outlook notes. “Despite the export sector’s sporadic performance, the weak Canadian dollar and stronger U.S. economy will allow the trade sector to contribute to overall economic growth in 2016. Export volumes are forecast to expand by 2.5% in 2016, adding 0.6 percentage points to the Canadian economy,” the outlook says.
Another area that is expected to provide a boost to Canada’s outlook is the public sector. “The new federal government is expected to pump around $10 billion into the economy in fiscal years 2016-17 and 2017-18. This adds about 0.3% to real [gross domestic product] growth this year,” the outlook says.