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Canada Says Economy to Rebound, Analysts Disagree
World Economy

Canada Says Economy to Rebound, Analysts Disagree

Canada’s economy should rebound “over the course of the year” from the impact of the Fort McMurray, Alta. wildfire, Finance Minister Bill Morneau said on the sidelines of a G20 meeting in Chengdu, China.
The fire is estimated to have cut daily oil production by more than one million barrels and the Bank of Canada estimates it will shave 1.25 percentage points off economic growth in the second quarter, CBC reported.
“We were approximately right in our expectations in our budget,” he said of Canada’s fiscal plan introduced in March, which promised growth spurred by government spending. Speaking to reporters by telephone, Morneau said the country’s growth was also challenged by global uncertainty following Britain’s vote last month to exit the European Union, but that was offset by the strong US economy.
Morneau also said Canada wants a separate trade deal with Britain. Canada is finalizing a free trade agreement with the EU, which negotiates on behalf of member states. Britain’s decision to leave the bloc means it has to eventually forge such deals on its own.
“We seek the opportunity to develop a strong trade agreement with the United Kingdom, and that’s something that I know my colleague (International Trade Minister) Chrystia Freeland will be working on,” Morneau said.

  Outlook Worsening
Reuters spoke with about 40 analysts and found that the country’s economic outlook is worse than it was just a few months ago—with two factors particularly to blame.
Collectively, the analysts predicted that the Canadian economy would grow by 1.3% this year, down from the 1.7% estimate they had three months prior.
Much of that can be connected to two things: oil and a softening American demand for Canadian exports.
Crude has seen a downturn in prices, and the devastating Fort McMurray wildfire put as many as 30 million barrels out of production. As for demand from the US, Reuters noted that there’s lots of unease in the country over a possible interest rate hike by the US Federal Reserve. November’s presidential election is also causing uncertainty.
  Trade Deals
Canadian exports are set to shrink at an annualized rate of 15% in the second quarter—the worst since the Great Recession of 2008/2009, Statistics Canada reported earlier this month.
Tough trade talk on the campaign trail by American presidential candidates Hillary Clinton and Donald Trump has added to the concern around exports.
Trump, in particular, has been critical of NAFTA, a key trade deal between Canada, the US and Mexico. That talk has fed fears about protectionism.
But last month, TD Bank issued a report showing that much of the chatter may not materialize in the way people are worried about.
“Protectionist policies are like trying to put the toothpaste back in the tube—it’s difficult to do, messy, and can be wasteful,” the report said.
  Rosy View
BMO Bank of Montreal senior economist Benjamin Reitzes had a comparatively rosy view of Canada’s economy.
In a note released Friday, he said the federal government’s spending could give the economy a lift in the second half of 2016 and the first few months of next year.
The boost comes as Canada’s debt-to-GDP ratio sits around the 30% range.
Japan, on the other hand, is about to start spending more despite a debt-to-GDP ratio of 130%—meaning its national debt is worth more than its national economy.
The BMO economist also praised Canada’s stable governance at a time when the UK is dealing with the Brexit fallout, and when the US election is grappling with a lack of party confidence in either presidential candidate.
“Despite a largely negative narrative over the past year, the outlook for Canada remains relatively positive,” Reitzes said.

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