Canadian bank sees economic growth despite lower crude prices

Surge in exports and low gas prices should offset oil decline.

Canadian bank sees economic growth despite lower crude prices
World Bulletin/News Desk
Some analysts say “panic” is setting in as crude oil prices fall and the Canadian dollar hit a five-and-a-half-year low, but a major Canadian bank said Friday that it is looking on the bright side.

The Canadian economy is tied to oil and analyst Alastair McCaig said Friday that “panic is beginning to set in” as crude prices plummet to new depths and financial markets fall, the Globe and Mail, one of Canada’s largest newspapers reported.

But in its latest market outlook, the Royal Bank of Canada, or RBC – one of Canada’s largest banks – said exports other than oil will rise as the Canadian dollar, also known as the “loonie,” falls in relation to the US currency. Combined with lower gas prices, that will more than offset the damage to the Canadian economy caused by the drop in crude oil prices.

“Our outlook for Canada is predicated on the fact that the decline in oil prices and any weakening of investment in the oil and gas industry will be offset by increased demand for Canada’s non-energy exports,” the RBC’s Craig Wright said in a press release. Wright is the bank’s senior vice-president and chief economist.

“On a national level, looking ahead to 2015, the net impact on lower oil prices will be negligible in terms of real GDP growth.”

That’s a welcome outlook, but others do not share in the cautious optimism expressed by the bank.

Large oil companies, including Canada’s Cenovus Energy Inc, are frantically cutting spending and some economists are revising their economic forecasts – downward – for growth in Canada in 2015, the Globe reported.

The loonie's five-and-a-half-year low stands at just above 86 cents, but while that makes imports from its largest trading partner, the United States, more expensive, it also means Canadian goods are cheaper to export.

If the expected growth in exports does occur, it should offset the oil price debacle. The RBC predicts a GDP growth of 2.5 percent this year and 2.7 percent in 2015, before falling off a bit to 2.1 percent in 2016.

“The outlook for Canada was muddied by the decline in commodity prices; however, on balance our analysis suggests that any weakening in investment in the oil and gas industry will be offset by the increased demand for Canada’s non-energy export,” the bank said.

It also predicted 85 cents to the dollar for next year, falling to 82 cents in 2016, while the jobless rate will remain near 6.5 percent in 2015, about its current rate.

Güncelleme Tarihi: 13 Aralık 2014, 10:34