Economists at Bank of Nova Scotia have trimmed their economic forecast for Canada, citing the impact of lower oil prices.
In a new report, Scotia economists have reduced its forecast for Canadian GDP growth for 2015, from 2.3% to 2.2%, amid the continuing slump in crude oil prices. “Notwithstanding lower prices at the pump, sluggish employment and wage gains, a more subdued housing market and high household debt burdens are expected to restrain consumer spending,” it says. “The outlook for industrial activity is mixed, with sharply lower oil prices tempering energy sector investment, while strengthening U.S. growth and a weaker Canadian dollar boost manufacturing prospects.”
Amid its revised outlook, which includes softer oil prices and a weaker Canadian dollar, Scotia also sees the mix of provincial growth trends shifting, with real GDP growth boosted in Manitoba, central Canada and the Maritimes, but subdued in Alberta, Saskatchewan and Newfoundland and Labrador. As a result, Ontario is expected to lead provincial growth in 2015 by a narrow margin.
Scotia says that it expects moderating inflation across Canada, given the lower oil and natural gas prices. And, for the three major oil-producing provinces, “the surge in recent years in labour compensation is expected to cool, alongside lower core inflation persisting through 2016.”
Global growth is forecast to average 3.3% in 2015, Scotia says, in line with last year’s 3.2% growth. As in Canada, the global economy is facing offsetting impacts from lower oil prices. “The cash flow boost to consumers and businesses associated with the over 50% slide in the price of crude oil since mid-2014, and the improving performances in a number of countries, most notably the U.S., should reinforce stronger economic momentum internationally,” Scotia says. “At the same time, production and capital spending cutbacks in many oil producing countries around the world, the continuing slowdown in China, the restraint underway in a number of structurally weak nations and budgetary-challenged jurisdictions, as well as the increased volatility in financial markets, will drag on growth.”
It expects global real GDP growth to gain a little more momentum in 2016, “to average a slightly better but still moderate 3.6%” during the year. “Oil prices should move gradually higher, but remain supportive of somewhat stronger economic growth as energy-related production and capital spending begin to rebound. Nevertheless, a broad-based and synchronized upturn remains elusive, and susceptible to interruption from persistent geopolitical risks and chronically
underperforming economies,” it says.
On the policy front, Scotia says that the U.S. Federal Reserve is expected to begin raising short-term interest rates in the second quarter, the European Central Bank (ECB) will introduce a quantitative easing plan to purchase sovereign debt, and the Bank of Japan will expand upon its non-conventional bond buying program. The Bank of England and the Bank of Canada will likely remain on the sidelines for longer given their more moderate growth trajectories.