We could be looking at another rate cut from the Bank of Canada by mid-year, says Douglas Porter, chief economist of BMO Financial Group. Along with the other Big Five economists, he spoke at the Economic Club’s 2016 outlook breakfast this morning.
While domestic growth was buoyed by stronger-than-expected housing markets and solid consumer spending in 2015, he explains, business investment has remained weak and we’ll likely only see 0.5% growth in exports. Also, he predicts the loonie will bottom out in the spring at just below US$0.70, before rebounding to US$0.73 by end of 2016.
Avery Shenfeld, chief economist at CIBC World Markets, adds that we won’t see the loonie go higher than US$0.75 in 2016-2017, even if oil improves. That’s because $60/barrel oil is “optimistic,” says Warren Jestin, chief economist at Scotiabank. He says $60-oil can reinvigorate some American shale gas operations, but that it won’t reinvigorate the oil sands, which break even between $60/barrel and $80/barrel.
Beata Caranci, chief economist of TD Bank Group, says those dynamics mean Canadian growth will stay below 2%, even in 2017. Her 1.5% to 1.7% growth forecast for 2016/2017 includes 0.3% growth from fiscal stimulus.
The outlook event also featured chief economist Craig Wright of RBC.
For more on Canada, the U.S. and global growth, see our live tweets below. And, follow @advisorca for more news and event coverage.
Live tweets from 2016 Economic Club Outlook Breakfast
Jestin: higher U.S. interest rates will be a global issue. China matters, and its growth will fall below 6.5%. #ecoutlook2016
Jestin: Asia matters more than China. India doing better than China, but it’s too small (won’t offset slowdown). India is at 7.5% growth.
Jestin: Europe’s structural rigidity and geopolitical risk, plus low population growth, means not a great buy. #ecoutlook2016
Jestin: BRICs aren’t what they used to be. Brazil and Russia in recession. Brazil’s best case is to be out of recession in 2017.
Doug Porter of @BMO up next. Says post-election fiscal stimulus in Canada could have meant 2.5% growth, but now it’s 1.5%ish due to poor economic conditions. There will be modest improvement in 2016, but a lot of growth differences across Canada. Regional growth is “a race of the turtles.”
Porter: last year not bad for Canadian consumer, and we should get reasonable consumer spending in 2016. But can’t carry the day
Porter: housing a pleasant surprise for us in 2015. But we can’t count on it to lead way in 2016.
Porter: business investment declining. Further 20% drop in resource biz investment, leading to overall 3%-4% drop.
Porter: exports will help us, but 0.5% growth best we can hope for.
Porter: another rate cut priced in mid year. Official @BMO position is no cut, but Poloz is making it seem like a 0.25 decrease is not a big deal
Porter: 2015 was loonie’s second-worst ever. Loonie will bottom out in spring just below $0.70. Could recover to $0.73 by end of 2016
Craig Wright of @RBC is next. Says his forecast doesn’t account for Trump as president.
Wright: U.S. has seen employment gains. Wages picking up. Gains in house prices. Deleveraged consumers. All positive.
Wright: non-residential investment adding to growth. Investment outlook a bright spot. Domestic side will strengthen 3%.
Wright: inflation not worrisome. Inflation should get closer to 2%. Fed will continue to move rates higher modestly.
Avery Shenfeld from @CIBC won’t use pop songs or movies in his talk. Instead will use Shakespeare. For example, he says, all’s well that ends well. 2016 will be disappointing, but 2017 might be better year.
Shenfeld: we’re not all about oil. Some equities in Canada (service exporters, manufacturing) will benefit from low loonie and oil. Market is discounting all Canadian equities because of poor oil prices. Could be opportunity.
Shenfeld: much ado about nothing re: yield curve. Could see rate hike in 2017
Shenfeld: U.S. dollar is weighing on its own manufacturing and exports. Expects Fed hike in mid year, which will lift dollar, but then USD will settle down. But won’t see much better than $0.75 loonie in 2016/7, even if oil recovers.
Finally, Beata Caranci of TD. She’s been billed as a pessimist.
Caranci: we’re in a two-speed global economy. US 2.5%, UK 2.5%, Europe 1.5%. And that’s with a lot of gas. All roads point to a global economy with lower running speeds than they have in the past. Similar growth rates likely in 2017.
Caranci: we’re all counting on the US. Domestic demand in US will run at 3%, higher than GDP growth.
Caranci: we have a commodity rebound cycle, but less than past. Loonie would rebound less than before. US would rebound less than before.
Caranci: we don’t see 2% growth for Canada in 2017 because oil won’t be high enough to spur investment.