#Conference Board of Canada#Fort McMurray fires#Canadian Outlook #Matthew Stewart# Associate Director# National Forecast# The Conference Board of Canada#Canadian economic forecasts

Conference Board of Canada downgrades 2016 growth forecast to 1.6%

awrara ra
|Jul 22|magazine8 min read

The wildfires that damaged much of Fort McMurray and the surrounding areas, a weakening global economy, and the ongoing and significant deterioration in business investment have dimmed the growth outlook for Canada.

The Conference Board of Canada expects the Canadian economy to grow by just 1.4 percent in 2016, a downgrade from the 1.6 percent forecast in the previous edition of the Canadian Outlook.

“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.”

Highlights

  • The Canadian economy is expected to grow by an underwhelming 1.4 percent 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 US 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 percent 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. We expect non-energy investment to pickup in 2017 but stay below previous peak levels until 2018.

Global economic uncertainty is also dampening the Canadian growth outlook. 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 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 U.S. investment activity, will hold back export growth through 2016. Total export growth is forecast to slow to 2.5 percent in 2016, down from 3.4 percent last year.

The wildfires that engulfed much of Fort McMurray and the surrounding areas in May and June are expected to subtract 0.1 percent 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. Although this will have a significantly negative impact on the economy, 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.

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Read the July 2016 issue of Business Review USA & Canada magazine