A lack of spending to expand capacity will limit manufacturers' ability to increase production.
May 9, 2016
by PLANT Staff
OTTAWA — The decline in commodity prices, subpar global economic growth and overstretched Canadian consumers will limit Canada’s real GDP growth to 1.6% in 2016, according to The Conference Board of Canada’s Canadian Outlook: Spring 2016.
While modest, this is an improvement over last year’s growth of 1.2%.
“The decline in energy prices has stripped more than $50 billion in export revenues from the economy, and it will take time to recover,” said Matthew Stewart, associate director of national forecast. “Canadian consumers are also stretched due to mounting household debt levels, while softer global growth will take some of the steam out of exports.”
The report suggests the economy is forecast to grow by just 1.6% in 2016. There’s also concerns about export growth related to the Conference Board’s current global forecast.
The impact of low oil prices is most apparent in investment expenditures, which fell by $17 billion last year. With commodity prices expected to remain low, investment in the energy sector is expected to fall by $11 billion in 2016 and remain flat in 2017. Oil and gas investment is not expected to post any growth until 2018, when oil prices start to reach profitable levels for Canadian companies once again.
Non-energy investment has also been disappointing, and the lack of spending to expand capacity will soon limit the ability of manufacturing firms to increase production—a key factor holding back growth in exports this year.
The tepid global growth this year will also be an impediment to the long-hoped-for acceleration in Canadian export growth.
The US economy—the destination for 77% of Canada’s exports—will experience slower growth this year, and this will limit demand for Canadian exports.
The eurozone will continue to manage only moderate growth, while the UK economy will experience solid but slightly slower growth than last year. Demand from China is also weakening. Canadian export volumes are forecast to expand at a slightly slower pace than last year, increasing by just 2.7% in 2016.
Consumer spending has been one of the main drivers of economic growth over the last several years. However, record debt levels and sluggish job creation will restrain household spending in 2016.
The economy is expected to add just 110,000 new jobs this year, with the gains concentrated in health and education. Given the modest employment gains and a rising unemployment rate, wage increases are also forecast to be weak. Overall, real consumer spending is expected to rise by 1.8% this year.
Economic growth should accelerate to 2.2% in 2017 boosted by the non-energy sector.