A new Conference Board of Canada report has downgraded its projections for Canada’s economic growth in 2016 from 1.6 per cent to 1.4 per cent, despite a strong start to the year.
The wildfires that damaged much of Fort McMurray, AB, and the surrounding areas, a weakening global economy, and the ongoing and significant deterioration in business investment have dimmed the growth outlook for Canada, said the Conference Board of Canada in it’s latest edition of the Canadian Outlook, released Thursday. The Canadian economy is expected to grow by just 1.4 per cent in 2016, a downgrade from the previous 1.6 per cent forecast.
“The economy got off to a good start at the beginning of the year but, unfortunately, that momentum has largely dissipated,” said Matthew Stewart, Associate Director, National Forecast, The Conference Board of Canada. “The economy will likely contract in the second quarter and then rebound towards the latter half of the year. However, this won’t be enough to offset the second quarter’s weakness.”
Conference Board of Canada Economic Forecast 2016
Highlights:
• The Canadian economy is expected to grow by an underwhelming 1.4 per cent in 2016.
• Business investment remains the largest source of weakness in the economy and is forecast to decline again in 2016.
• Despite a low Canadian dollar, exports will slow this year due to sluggish U.S. economic activity and a weaker global outlook.
• The wildfires which engulfed much of Fort McMurray and the surrounding areas in May and June are expected to subtract 0.1 per cent from overall economic growth this year..
The largest source of weakness in the Canadian economy continues to be the slide in business investment. Business investment in the oil and gas sector fell by almost $19 billion last year, and with the price of oil expected to remain near its current level of US $50, investment in the sector is forecast to fall by another $14 billion this year.
Unfortunately, non-energy firms have not picked up the slack. Non-energy investment is expected to decline for the fourth consecutive year in 2016. The agency expects the non-energy investment to pickup in 2017 but stay below previous peak levels until 2018.
The global economy, which is already experiencing lacklustre growth, will be hurt by the UK’s decision to leave the European Union and by other shocks to confidence like the terrorist event in Nice, France, and the failed coup in Turkey. Although the direct impact of these events on Canada should be minimal, there could be an impact on already weak business confidence. This, combined with sluggish US investment activity, will hold back export growth through 2016.
Total export growth is forecast to slow to 2.5 per cent in 2016, down from 3.4 per cent last year.
The wildfires that engulfed much of Fort McMurray and the surrounding areas in May and June are expected to subtract 0.1 per cent from overall economic growth this year. Many oil sands operations were forced to shut down production, resulting in a massive short- term loss in output estimated at 57 million barrels, equal to $3.5 billion in lost revenues this year. There are some mitigating effects that will offset some of the short-term production shutdown such as firefighting and clean-up efforts, and insurance payouts.