As predicted, Canada’s economy had a largely flat 1st Quarter. Oil industry troubles continue to hinder net growth. While prices should increase this summer, it will likely be several years for before cancelled oil sands projects can restart. Energy exports are expected to decline by 20% in value in 2015 and non-energy exports will struggle to compensate. The remarkably high employment levels in Alberta and Saskatchewan are likely unsustainable and the housing market in the Prairies remains poor.
Outside the energy sector, performance will improve. A select group of non-energy exports will provide growth in Ontario, BC and Quebec. The lower Canadian dollar will connect them to a soon-to-be active U.S. economy. The Bank of Canada hopes this will provide enough stimulus to revive capital spending and employment prospects. They are unlikely to change interest rates again this year.
South of the border, the oil price crash has dampened overall 1st Quarter economic activity numbers, but most U.S. leading indicators signal growth. Oil producing states like Texas remain secure enough to plan tax cuts. The backlog of drilled, but uncompleted wells should become active again this summer as the WTI oil price is expected to move back up to $65/barrel.
Not only will American consumers continue to benefit from the resulting energy savings, but also higher wages per worker, an increase in hours worked and jobless claims at a 15-year low. Pent-up housing demand is slowly being released, which should provide an additional boost to retail sales.
Given the positive U.S. economic outlook, a slow and careful withdrawal of monetary policy stimulus is expected from the Fed. A long period of American economic expansion is coming.
Prospects for several international markets are also looking up. The monetary policies of the ECB appear to be working. Industrial production in the EA-19 is at a 4-year high, fiscal drag is declining and currency depreciation is providing an economic boost. India’s outlook is also positive; it is projected to surpass China as the global growth leader.
Canada’s trade performance remains bleak
Bank of Canada signals rate hike will come later rather than sooner as it eyes oil impact
Deal on Texas tax cuts almost complete
Draghi Says ECB Stimulus Working, Stay The Course