Toronto-based Bank of Nova Scotia has slashed its for forecast for Canadian gross domestic product (GDP) growth in 2016, amid expectations for a weaker recovery to start the year and continued low commodity prices.
In its Global Forecast Update report published on Monday, the bank has cut its forecast for Canadian GDP growth this year from 1.6% to 1.1%. “We now expect output to have stalled in the final quarter of 2015, and anticipate a more muted recovery in the first half of 2016, as slumping oil prices lead to further energy sector cutbacks and temper employment, confidence and household spending,” the report says.
Within Canada, “recessionary conditions have emerged” in the more energy-dependent provinces of Alberta, Saskatchewan and Newfoundland, the report says.
“The pervasive weakness in the resource sector — reinforced by the lingering global economic malaise and a more prolonged slump in commodity prices — is fundamentally reshaping the country’s economic landscape to a lower and slower growth trajectory,” it adds.
“Commodity prices are expected to remain on the low side,” the report says. “Oversupply conditions continue to dominate the outlook for most commodity markets, and crude oil in particular, with increasing inflows from Iran and Iraq.”
Looking further out, Scotiabank expects that a stronger recovery will take hold later in 2016, and in 2017, “on the back of improving export activity and increased fiscal stimulus,” the report says. Indeed, the bank is expecting “significant” federal stimulus is from mid-2016 to mid-2017 “to support near-term growth and strengthen Canada’s longer term economic prospects,” the report adds.
“The transition to a stronger growth trajectory in Canada requires a quicker rebalancing in the supply/demand conditions affecting most commodity prices, a faster and more synchronized global upturn in spending led by the U.S., and increased export penetration into the U.S. marketplace aided by a broader competitive revival,” the report says. “Domestically-focused fiscal stimulus will provide a much needed assist, though the competitive implications associated with running larger deficits for longer, if not addressed, could eventually erode the shorter-term benefits.”
Scotiabank is also trimming its U.S. GDP forecast for 2016 from 2.5% to 2.2%, the report says. It cites weaker-than-expected economic performance in the fourth quarter of 2015, along with the impact the stronger U.S. dollar and sluggish global demand.