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BOC’s Poloz says weak oil prices could pressure Canadian growth

H.S. Borji
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BOC’s Poloz says weak oil prices could pressure Canadian growth

Weak oil prices could shave a quarter percentage point off Canada’s gross domestic product next year, according to Bank of Canada Governor Stephen Poloz.

Testifying before the Senate banking committee on Wednesday, Poloz said persistently low oil prices could weigh on Canada’s growth prospects in 2015. Oil prices below $90 US a barrel, in Poloz’s view, could pressure Canadian growth and weigh on job creation.

Energy futures were down Thursday. West Texas Intermediate for December delivery tumbled 1.51 percent to $80.96 a barrel. Brent, the global benchmark, declined 1 percent to $86.25 a barrel.

According to Poloz, cheap oil is not a serious problem in the macroeconomic sense, but is a concern given Canada’s current position. The export-driven of 35 million is expected to grow 2 percent to 2.5 percent next year as the economy gradually reaches full capacity. In the central bank’s view Canada needs to grow more than 2 percent to stimulate job growth and close the output gap, the difference between GDP and potential GDP.

Canda’s labour market has struggled with consistency all year, as employers took turns adding and destroying jobs. The employment situation improved considerably in September, as employers added 74,000 workers. Nearly all the gains were in full-time work. That helped push down the unemployment rate to 6.8 percent, a nearly six-year low.

Year-on-year, Canada’s job market added 150,000 jobs, representing a monthly growth rate of 13,000.

Statistics Canada will release October employment numbers next week. Early estimates suggests Canadian employers added more than 20,000 workers this month.

The Canadian economy received a boost in the second quarter, growing 3.1 percent over year-ago levels. The gains were driven in large part by a resurgent export sector, which was buoyed by a weaker loonie and stronger US demand. Canadian exports rose 4.2 percent in the second quarter after declining in the March quarter.

StatsCan will report on August GDP Friday. Canada’s economy was flat in August, according to forecasts.

The BOC is relying on exports to support Canada’s recovery. It has acknowledged in recent monetary policy statements that exports are rising, but that more consistency would be needed to close the output gap.

The Bank of Canada last week held its trend-setting rate target at 1 percent, as expected. The rate announcement was accompanied by the Monetary Policy Report, a biannual study of the Canadian economy.

Exports “appear to be responding,” Poloz said in an October 22 press release. “However, it is clear that our export sector is less robust than in previous cycles.”

The Canadian dollar declined Thursday, but is pacing for its second consecutive weekly gain. The loonie appreciated 0.6 percent against its US counterpart last week. As of Thursday’s North American session, the loonie was valued at 0.8932 US, down 0.1 percent from the previous close.

The loonie has declined 4.9 percent since the beginning of the year. Currency analysts expect the loonie to fall further below the 90 US cent level over the next year as the United States Federal Reserve begins normalizing interest rates.

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