The spike in financial market volatility all over the world won’t leave Canada unscathed, said CIBC World Markets, as it downgraded its outlook for the country’s economic growth this season.
The bank’s chief economist said Thursday that he now sees gross domestic product expanding just by 1.3 percent this year, in contrast to a forecast of 1.7 per cent made at the start of the entire year.
CIBC acknowledged the downgrade, hitting only a month after it issued its 2016 forecast, is unusual.
“However, they are unusual times,” said Avery Shenfeld, chief economist of CIBC World Markets. “Oil’s further plunge, and a similar malaise across the majority of the resource space, is constantly on the break the rules the timetable for reaching a bottom in related capital spending in Canada.”
The downgrade brings CIBC even further below consensus requires economic growth this season, which with different survey of economists by Bloomberg, currently sits at 1.8 per cent.
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It also increases the concerns voiced by both economists and central banks this week concerning the volatility in global markets. On Wednesday, the U.S. Fed issued a dovish statement that said it had been closely monitoring the steep selloff available markets this month.
Shenfeld said even his 1.3 percent growth call might be optimistic, because it factors within the authorities spending $10 billion more about stimulus this year than originally envisioned, a $30-billion federal deficit and also the Canadian dollar going even lower.
The forecast weighs the results of a lower loonie for exporters in comparison to the negative effects of the oil price crash. Shenfeld notes the latter continues to be filtering in to the economy, adding to the down-side pressure.
“As the country’s GDP is less heavily weighted to resource sector spending than it was a year ago, we’re only in early stages from the negative spillover effects on other sectors,” he explained.
With that shock still hurting business confidence and leading to layoffs, Canada’s one economic bright spot will also be under assault this season: job creation. The Canadian economy managed to produce 158,000 new jobs this past year despite the layoffs within the energy sector, a growth rate of 0.9 percent. Stronger than the growth rate of 0.7 per cent both in 2013 and 2014.
But it will be difficult to repeat that feat this year, said Shenfeld.
“It’s only because employment grew that people didn’t record an official recession, since real GDP fell slightly around to October 2015,” he said. “That employment trend looks vulnerable within the affected provinces given indications of accelerating layoffs within the resource sector, cheap job creation has been leaning so heavily on self-employment rather than business hiring.”
