Bank of Canada Governor Believes Canadian Economy Will Improve in 2015


Central bank head Stephen Poloz said that the second quarter would see positive results after the economy suffered from the shock of low oil prices. The bank expects an annual growth rate of 1.8 percent in the second quarter and 2.8 percent for the third quarter.

Poloz is going to have a hard time convincing investors and laid-off workers that the economy will fare better in the long run after the oil price slump. The oil dip spilled over into many other areas of the Canadian economy, such as construction, housing, engineering and the stock market. Consumer confidence has lowered, and employers have not hired at such a low rate since 2009.

Canada Sees Slight Improvements

Poloz expects that the economic damage from falling oil prices should be behind Canada in the second half of the year. He alleviated concerns by stating that the price drop would not be a usual occurrence, while stressing that the economy adjusted accordingly. He also dismissed the idea of further interest rate cuts to support the economy. The Bank of Canada cut rates by 25 basis points in January, with no sign of future cuts.

Forecasters lowered the bar for certain sectors, but GDP, retail and employment rates surpassed expectations, and inflation outpaced the central bank's projected target of 2.0 percent. The export market continues to prop up the economy as exporters benefit from stronger U.S. growth and a weaker Canadian dollar.

The Need for Canada to Diversify

Even though Canada's energy sector has taken a massive hit from lowered oil prices, Alberta will become a leader in energy technology. However, the damage has already been done. Companies such as Royal Dutch Shell and Petrobras shelved energy projects in western Canada, and the industry lost billions of dollars from declining oil prices. Alberta bears the brunt of the oil dip, with housing debt averaging CAD$124,838 in comparison to CAD$76,150 for the rest of the country. Alberta's heavy crude trades at a discount compared to WTI crude, placing Canada at a further disadvantage.

The discount is mostly attributed to insufficient pipeline capacity, and the country faced numerous stalls in pipeline projects, most notably the Keystone XL pipeline in the United States. When oil prices are high, however, tar sands production performs better than U.S. shale drilling, but the energy sector as a whole will remain unstable as oil prices fluctuate. Overall, the energy industry in Canada expects to lose 37 percent of revenue for 2015. Canadian officials must diversify the economy while minimizing the crucial role that the energy industry plays in the economy.