Alberta and other energy-intensive regions have been on an economic roller-coaster over the past few years, leading to painful adjustments for many. It’s also weighed on Canada’s bottom line, Carolyn Wilkins, senior deputy governor of the Bank of Canada told a Calgary Chamber luncheon on Thursday.
She said Canada’s economic performance has been relatively solid but several developments at the end of 2018 and beginning of 2019 have set it back.
“As you here in Calgary know all too well, there was the drop in oil prices last autumn and ongoing transportation constraints. Escalating tariff actions by the United States and China, and related tensions, have undermined trade and business investment. And housing, a linchpin of the recovery since the crisis, slowed sharply,” said Wilkins.
She said the trade war that the United States and China are waging is damaging not only their own prospects, but also those of the rest of the world.
“Now, we had been expecting the global economy to slow last year. The U.S. economy was growing at nearly four per cent heading into the second half of 2018, well above its non-inflationary speed limit. We knew that the combined effect of interest rate hikes and the fading impact of tax cuts would bring U.S. growth to a more sustainable pace. Some other central banks, including the Bank of Canada, were also taking steps to bring monetary policy settings toward more normal levels. And in China, financial regulations were tightened to slow borrowing and support financial stability,” explained Wilkins.
“The trade environment, however, has made the global slowdown worse than had been expected. It has undermined business sentiment and held back investment decisions in dozens of economies, including Canada’s. The slowdown in investment has weighed on global trade as well, as firms put off the spending that is needed to increase their capacity to export.”
In its April forecast, the Bank of Canada estimated growth in Canada will slow to 1.2 per cent this year from 1.8 per cent in 2018.
“Slower growth isn’t all about trade uncertainty and the global slowdown. This outlook also takes into account the effect of lower oil prices and transportation constraints in energy-intensive regions. Growth excluding these energy-related factors would be 0.3 percentage points higher. The outlook also accounts for the housing slowdown, which has been deeper and more prolonged than expected, particularly in the greater Vancouver and Toronto areas,” added Wilkins.
She said Canadian business investment is expected to expand gradually overall, led by firms outside the oil and gas sector.
“It should be strongest in areas where companies have confidence in future markets and sales and need to invest to expand capacity or to become more productive. Attractive financing costs like those we see today, as well as recent incentives put in place by the federal and some provincial governments, are also key ingredients,” said Wilkins.
Mario Toneguzzi is a Troy Media business reporter based in Calgary. He writes for Calgary’s Business.