The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.
Since last fall, oil prices have plunged 50 per cent and nervousness is running high about a slowing Canadian economy. Lower oil prices will unambiguously hurt growth and the latest data on GDP point in that direction. About one-quarter of Canada’s exports and private investment (excluding housing) are tied to the energy sector that, itself, accounts for about 10 per cent of GDP.
Weakness in the oil and gas sector could also spill over to the wider economy. In response, the Bank of Canada surprised markets on January 21 and cut its policy rate – which had been on hold at 1 per cent since September, 2010. The currency fell and interest rates eased. The loonie currently is near a 6-year low against the U.S. dollar. So is the economy in trouble?
In the IMF’s annual report on Canada released last week, forecasts for growth have been marked down. A further downgrade is likely to come given that oil prices have fallen further since the forecasts were made. The oil shock has been noteworthy in terms of its nature, size and sharpness – perhaps, best resembling 1986’s supply-driven price decline, when Canada was not a large oil exporter.
So it is hard to know with high confidence just how deep the effects might be. What is clear is that the energy sector is on the front lines and will take a hit. Recent announcements from the oil industry confirm plans for layoffs and scaling back investment in the near term.
However, there are good reasons to think the drag on growth will be manageable. And, after years of a beneficial oil boom and strong currency, there is an opportunity for some welcome rebalancing of the Canadian economy. First, the U.S. economy – Canada’s main trading partner and a net oil importer – is expanding at a robust pace. This provides an important offset from abroad for weaker growth domestically.
For the rest of this article, click here: http://www.theglobeandmail.com/report-on-business/rob-commentary/commodity-slump-could-finally-bring-balance-to-canadas-economy/article22752705/