Conference Board downgrades growth forecast

A 15.5% drop in Q1 business investment tipped the economy into a small contraction.

July 29, 2015

OTTAWA — Add the Conference Board of Canada to the list of analysts that forecast sluggish growth for the year.

The Ottawa-based research firm has downshifted its outlook, blaming the contraction of the Canadian economy in the first quarter of the year, lower oil prices, a near-record trade deficit and uncertainty in global markets for slowing growth to just 1.6%, the worst showing since 2009.

“We expect the numbers to show economic growth tracking close to zero in the second quarter, as the economy flirts with recession,” said Matthew Stewart, associate director, national forecast for the Conference Board. “But even if Canada slips into mild recession, we expect it to be small and short-lived, with the economy picking up through the rest of the year.”

The outlook also shows positive signs of growth with the economy adding 16,000 jobs a month on average over the first half of the year, which is better than most of 2014.

Business investment will be the weakest part of the economy this year, held back by deep cuts in the energy sector, says the Conference board.

Oil and gas firms are expected to cut investment by almost one-third, from $68.8 billion last year to $52.5 billion this year.

Outside the energy sector, firms remain hesitant to invest. Purchases of machinery and equipment were down significantly in the first quarter, and a decline in building permits suggests a downturn in commercial construction in 2015.

Overall, business investment will drop by close to 7%.

The trade sector offered a bright sport in the forecast. It’s expected to make a significant contribution to overall economy growth as the US economy gathers momentum through the rest of the year and with the Canadian dollar trading well below 80-cents-US. As a result exports should manage growth of 3.1%.

Economic growth to improve next year. However, with Canada’s potential output growth slowing due to an aging population and lacklustre investment outside of the energy sector, the Conference Board says real GDP growth is not expected to exceed 2.3% at any point over the next five years.

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