Canadian economic recovery to continue in 2016, fiscal policy likely to support economy in future

Canada’s economy has rebounded markedly from the oil price collapse, mainly due to CAD’s depreciation. Canadian dollar’s decline partly countered the lower prices for commodity exports, while underpinning sectors other than the oil and gas industry.  The Canadian economy had recorded subdued activity in H1 2015; however, it rebounded markedly in the third quarter. But by the end of 2015, the pace of recovery slowed down again.

The Bank of Canada had mentioned that the economy has performed better than expected in the first quarter; however, this is because of temporary factors. The oil prices had continued to be at lower levels during the start of 2016, a drag on the energy sector that is still pulling back its investments. Meanwhile, the CAD also appreciated against the USD since the start of 2016 as the US Fed is uncertain about carrying on with the hiking cycle that suggests that the positive impact of the weaker CAD will wane over time, said Commerzbank in a research report. Moreover, the US economy had a weak start to 2016.

Although the growth dynamics seen in the start of 2016 will not remain to the same degree, the Canadian central bank is positive that the economy will continue to expand robustly. Sectors excluding oil and gas industry are displaying good development. The continual structural changes are expected to decelerate the economic growth for some time. However, the Canadian economy is expected to continue recovering in 2016, noted Commerzbank.

Oil prices are expected to increase in the medium-term. Moreover, fiscal policy is likely to considerably underpin the Canadian economy in the future, added Commerzbank. The central bank had raised its 2016 growth outlook in April to 1.7% from the earlier estimate of 1.4% because of positive impact of the fiscal stimulus.

“We expect moderate GDP growth of 1.4% in 2016, compared with 1.2% last year” said Commerzbank.