Canada’s economy ended 2018 on a weak note, posting the slowest quarterly growth rate since mid-2016 and providing a soft handoff to 2019, according to a Provincial Outlook report released Friday by RBC Economics. Much of the sluggishness is blamed on the energy sector.
The report said it expects that to continue in early 2019.
“The weaker starting point has led us to reduce our provincial growth outlook – particularly in Alberta, where oil market-access issues continue to weigh on the energy and construction sectors,” it said.
“Alberta ended 2018 on a rough note after the differential between the Western Canadian Select and West Texas Intermediate oil benchmarks widened to record levels last fall. Grappling with market-access issues and a growing oversupply of oil, the provincial government mandated production cuts to bring price differentials down.
“While the policy had the intended effect, the postponement of Enbridge’s Line 3 replacement project – which would add 375,000 barrels of crude oil export capacity – means access issues will persist well into 2020. The mood in the oil and gas sector was reflected in data for capital investment intentions, with a four per cent decrease expected this year in the mining, quarrying and oil and gas extraction sector. We’ve revised our estimate for Alberta’s real GDP growth in 2018 to 1.7 per cent from 2.4 per cent. Growth will slow further to 1.3 per cent in 2019, although Alberta should lead Canada growing by 2.6 per cent in 2020 once market access improves.”
RBC said Alberta economic growth was 1.7 per cent in 2018 while in Canada it was 1.8 per cent. The financial institution is forecasting economic growth of 1.5 per cent in 2019 and 1.8 per cent in 2020 for Canada.
The severity of the energy-led downturn is expected to be short-lived, said RBC, adding that it does not expect a dramatic pullback in investment such as the one that occurred in the previous period of falling oil prices.
“The impact of the energy-sector weakness on the Canadian economy is more limited when compared to the previous oil downturn in 2015 and 2016,” said Craig Wright, Senior-Vice President and Chief Economist, RBC, in a statement. “Our forecast assumes that oil prices will hold around current levels throughout 2019 and grind higher in 2020.”
Mario Toneguzzi is a Troy Media business reporter based in Calgary. He writes for Calgary’s Business.