Canadian economy to weaken in Q2; likely to grow strongly in entire 2016

Canada’s economy grew at a respectable rate of 0.6% on a sequential basis in the first quarter of 2016, just a little lower than the central bank’s projections of a growth of 0.7%. But the recent wild fires in Alberta region have significantly impacted the second quarter growth’s outlook due to shortfalls in output of oil. Meanwhile, the Canadian dollar has also strengthened markedly against the US dollar since the beginning of 2016 so that the positive impacts of a weaker currency are starting to diminish, said Commerzbank in a research report.

Furthermore, the US economy, which is Canada’s important export market, performed weakly in the beginning of 2016. According to the Bank of Canada, the economic growth is likely to slow down in the second quarter.

“We nonetheless expect robust GDP growth of roughly 1½% for the entire year as the shortfall in the oil production will be made up for in Q3 and the economy is likely to be supported by the reconstruction works in Alberta”, noted Commerzbank.

Moreover, industries other than the oil and gas sector are growing decently. However, the ongoing structural changes away from the vital energy sector are expected to decelerate the economy for certain time. Nevertheless, the Canadian economy is expected to continue recovering in the years to come, added Commerzbank.

The US economic weakness was just for a brief period of time. Furthermore, the oil price is expected to increase in the medium term. Also, fiscal policy is likely to considerably aid the Canadian economy in the future.