Fires and oil spell gloomy forecast for Canada’s economy in Q2

Fires and oil spell gloomy forecast for Canada’s economy in Q2

Fires and oil spell gloomy forecast for Canada’s economy in Q2 Following on from Statistics Canada’s downcast report on the domestic economy on Tuesday, the Organization for Economic Co-operation and Development has followed suit with negative projections for the rest of the year.

The revelation that the Canadian economy had contracted in March after a strong start to the year means that most analysts aren’t giving much hope for a recovery for Q2. With the Fort McMurray fire and its impact on oil production predicted to hit growth in the second quarter, the outlook looks bleak concerning the national economy in the short term.

Canada is far from the only country experiencing this phenomenon, and with Russia and Brazil still in the depths of a deep recession, and Chinese growth slowing, the OECD reduced its global growth forecast for the year by 0.3 percentage points to three per cent.

Canada comes in significantly lower than that level at 1.7% this year, and 2.2%in 2017, which is down from the OECD’s prediction made in November of 2.0% growth in 2016 and 2.3% in 2017.
The downgrade is a reflection of just how much the oil shock has damaged Canada’s economy since crude prices took a dive in 2014.

Speaking to Bloomberg, Chief Canada Macro Strategist at TD Bank’s Securities unit, David Tulk, didn’t sugar coat his prediction for Q2. “I don’t expect great things from the energy sector and investment more generally,” he said, while stating his belief that GDP could shrink by as much as 1% in the April-to-June period. “The second quarter is going to be very ugly, there’s no two ways about it.”

Another area of concern, which in fact was one of the few positive signs in StatsCan’s report, was the increase in consumer spending by 2.3%. The IMF has warned that this spending is being facilitated by record levels of personal debt and as such is unsustainable in the long term. Regulators confirm that much of this debt is being accrued due to sky-high property prices in markets such as Toronto and Vancouver, causing consternation about a housing correction occurring in these areas. 

Strong start but weak finish for Q1