RBC cuts growth forecast; blames drop in oil prices

GDP to grow by 2.4% this year, down 0.3% from December’s forecast.

March 12, 2015   by CANADIAN PRESS

TORONTO — RBC Economics has downgraded its latest forecast for the Canadian economy in 2015 after a sharp drop in energy prices.

The bank projects Canada’s real GDP to grow by 2.4% this year – a reduction of 0.3 percentage points from its forecast issued last December.

RBC says while the drop in energy prices is a negative for the oil and gas sector, much of the weakening will be offset by stronger consumer spending and exports.

The bank predicts exports will provide a lifeline to the economy this year after a strong performance in 2014 when volume increased by 5.4%.

RBC also predicts lower gas prices will fuel more consumer spending.

Provincially, RBC says Alberta’s forecast is significantly lower, as is the outlook for Newfoundland and Labrador and Saskatchewan to a lesser extent. It says brighter prospects were expected in Ontario, BC, Quebec and most other provinces.

“We estimate that the drop in oil and corresponding fall in gas prices will pump up consumer purchasing power by $11 billion in 2015,” said RBC senior vice-president and chief economist Craig Wright.

“Consumption’s contribution to real GDP growth in 2015 will be boosted by 0.2 percentage points.”

The RBC forecast suggests capital spending by the oil and gas industry will fall by as much as 25% this year, causing a one percentage point drag on GDP growth.

But an 8% boost in investment outside the oil and gas sector will cap the drag from business investment on real GDP growth to 0.3 percentage points.

“We see the hit to the economy from a pullback in oil and gas activity as targeted and regional and unlikely to derail Canada’s economy this year,” said Wright.

“As firmer consumer spending and exports become increasingly evident, the BoC will be in a position to remove the insurance it has put in place around monetary policy.”

© 2015 The Canadian Press

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