Canada Economy Still Under Pressure

Uncertainty on US trade policy and a mixed record for labor means Canada’s economy is still under pressure despite higher oil prices, the central bank said.

The Canadian economy, Alberta’s in particular, was under considerable pressure last year because of the slump in crude oil prices. The situation was compounded in early 2016 when regional wildfires sidelined about 1 million barrels of oil production per day, UPI reported.

Stephen Poliz, the governor of the Central Bank of Canada, told lawmakers in Ottawa that, with oil prices improving, economic expansion over the last six months was better than expected. The economy for the next six months should expand at around 2.5%, up from the 2% growth forecast from January.

“What we are seeing now is that energy-related activity has stopped declining and is transitioning to a new level that is commensurate with the current level of oil prices,” he said in his opening remarks before the House of Commons.

Outside of the energy sector, the strains on the Canadian economy persist. By the bank’s estimates, the labor market is uneven, with wages increasing slowly and capacity unfilled, compared with a US economy that’s close to full employment.

Corporate spending, meanwhile, is modest at best, Poliz said. Most companies said they’re targeting sustainability, rather than expansion, which he said shows the overall economy is not yet moving toward full-fledged growth.

US President Donald Trump on taking the oath of office in January pledged to dismantle or reconfigure central parts of the North American Free Trade Agreement, rattling Canada’s nerves as the United States is a key trading partner. Almost all of Canada’s oil exports target the US market.

Poliz said that uncertainty is leaving many economists and corporations guessing. “With all of this uncertainty, we cannot reliably model the impact of changes to US trade policy,” he said. “Instead, we have built in an extra degree of caution in our forecast for exports and investment relative to our January projection.”

“The threat of US protectionism, that’s something that is very, very significant for Canada and … it’s very difficult to analyze it in advance because it could take so many different forms. It certainly will be negative and it could even be a major shock,” Poloz said.

The Bank of Canada on Wednesday left its benchmark rate unchanged, at 0.5%, saying it is too early to conclude that the economy is on a “sustainable growth path” despite a recent rebound that led it to bump up its 2017 outlook.

“During the rest of this year and into 2018 and 2019, growth in Canada is expected to moderate but remain above potential,” the bank said.