The contraction of the Canadian economy in the first quarter combined with lower oil prices, a near-record trade deficit and uncertainty in global markets will mean the economy is likely to grow by just 1.6% in 2015, its worst showing since 2009, according to a report released by the Conference Board of Canada on Wednesday.
“There has been much speculation on whether the Canadian economy has dipped into recession,” says Matthew Stewart, associate director, national forecast with the Conference Board, in a statement. “We expect the numbers to show economic growth tracking close to zero in the second quarter as the economy flirts with recession.”
The Conference Board is anticipating that business investment will be the weakest part of the economy in 2015, with a drop of close to 7%. This is mainly as a result of the energy sector, in which investments are expected to drop to $52.5 billion this year from $68.8 billion in 2014. The report notes that firms outside the energy sector are also reluctant to invest. For example, a decline in building permits suggests a downturn in commercial construction this year, the research states.
Household spending is also expected to weaken as a result of soft employment growth, weak wage gains, high level of household debt and job losses in oil-producing provinces. Growth in consumer spending will be limited to 2.1% in 2015, according to the Conference Board report.
However, any potential slip into a mild recession will be short-lived and the economy is expected to improve throughout the rest of the year, Stewart says.
“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 adds.
A disappointing trade sector is also expected to improve and make a significant contribution to overall economic growth. A lower Canadian dollar and a U.S. economy expected to show momentum through the rest of 2015 should manage growth of 3.1% in exports.
The Conference Board research notes that economic growth should improve next year, but with an aging population and lacklustre investment outside of the energy sector, real gross domestic product growth is not expected to exceed 2.3% at any point over the next five years.