Canadian economic growth slides with decline in oil prices

Conference Board of Canada downgrades growth forecast

OTTAWA, Feb. 9, 2015 /CNW/ - Canada's economy is expected to grow by just 1.9 per cent in 2015 as the collapse in oil prices takes its toll on business investment and corporate profits, according to The Conference Board of Canada's Canadian Outlook-Winter 2015.

This rate of growth represents a substantial downgrade from the Conference Board's previous Canadian Outlook of 2.4 per cent (released in November 2014).

Business investment will be the weakest part of the Canadian economy in 2015. Real business investment on energy structures and exploration is forecast to drop by 23 per cent in 2015.

"Even before the drop in oil prices, we were projecting a small dip in overall business investment due to soft growth in domestic consumer demand. Now, the sharp decline in energy-related profits will force oil companies to pull back their capital budgets," said Matthew Stewart, Associate Director of the National Forecast.

HIGHLIGHTS

• Business investment will be the weakest part of the Canadian economy in 2015.
• The drop in oil prices will cost producers more than US$40 billion in lost revenues.
• The trade sector will be the bright spot in the Canadian economy because of a strong U.S. economy and a lower dollar.

Oil prices appear to be bottoming out at about US$50 per barrel. Although the Conference Board expects that prices will recover to above US$60 per barrel by the end of the year, this still represents a 40 per cent decline in crude oil prices in 2015 from last year. Producers are expected to export an average of 3 million barrels per day in 2015, (up from 2.8 million barrels per day in 2014 despite the collapse in oil prices) and the drop in prices will cost them more than US$40 billion in lost revenues.

Many firms in the oil patch have already announced steep cuts to their capital budgets, and significant layoffs are expected both in the oil industry and among businesses involved in its supply chain. The pain will be particularly severe in Alberta and Newfoundland and Labrador, and, to a lesser degree, in Saskatchewan.

With the U.S. economy gaining momentum and a weakening Canadian dollar, Canada's trade sector -- concentrated in Ontario and Quebec -- will be a bright spot in the outlook. In addition, the drop in oil prices should boost consumer spending because of lower gas prices, which should save the average household almost $1,000 this year. Despite tax cuts and lower gasoline prices, consumer spending growth is expected to slow. As a result of the general sluggishness of the economy, interest rates are expected to remain at current levels until 2016.

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SOURCE Conference Board of Canada