OTTAWA – Bleak numbers showing that Canada’s economy shrank in the first three months of 2015 have already created a torrent of downgraded economic projections on how the rest of the year will unfold.
The falling expectations of economists follow last week’s news that the economy had contracted in the first quarter at an annualized rate of 0.6 per cent.
That reading for real gross domestic product came in below most predictions, including the Bank of Canada’s forecast of zero growth, and could have political implications with a federal election less than five months away.
The experts have wasted little time recalibrating their economic predictions for the rest of 2015.
On Wednesday, the Organization for Economic Co-operation and Development sliced its average 2015 growth forecast for Canada to 1.5 per cent — down from its 0.7 per cent March prediction. The Paris-based OECD cited weaker investment in the energy sector following the drop in oil prices.
The country’s big banks have also lowered their 2015 real GDP predictions since Statistics Canada released the first-quarter data last Friday, with RBC and CIBC among the latest to unveil pared-down numbers.
CIBC released a document Wednesday that contains its updated projection: 1.4 per cent, down from 1.7 per cent.
“We were already a bit on the lower end of the consensus and this is just really a further adjustment to reflect the stinging disappointment of the first-quarter numbers,” CIBC senior economist Avery Shenfeld said Wednesday.
“The real issue is: does the economy pick up before the end of the year?”
The first-quarter slide in real GDP, a measure of economic growth, has been blamed in large part on the oil-price collapse, the failure of other sectors to pick up the slack and weaker-than-expected growth in the United States.
Some economists have also cited other drags on the economy, such as Alberta’s wildfires, coal production cuts and BlackBerry layoffs.
Looking forward, several have pointed to the March’s dismal GDP number — negative 0.2 per cent — and the weak trade numbers for April as signs that suggest the economic struggles will continue in the second quarter.
BMO, meanwhile, has also trimmed its 2015 real GDP estimate from 1.7 per cent, to 1.5 per cent.
The bank’s chief economist Douglas Porter said if the average holds, it would be the slowest growth for Canada — outside of recession — in at least the past three decades.
The experts’ adjustments are also rolling in as the October election date approaches, breathing life into the always-central political debate on the economy.
This week, federal Finance Minister Joe Oliver has tried to deflect concerns over Canada’s poor economic showing to start 2015.
Oliver told a parliamentary committee Tuesday he doesn’t anticipate a recession, typically defined as two or more consecutive quarters of economic contraction.
On Wednesday, NDP finance critic Nathan Cullen challenged Oliver in the House of Commons on the OECD’s downgrade to its growth projection for Canada.
“This minister refuses to take off the rose-coloured glasses and face reality,” Cullen said.
Oliver responded by arguing the OECD report confirmed the country’s sound fiscal situation and projected the Canadian economy to grow by 2.3 per cent in 2016.
The federal Finance Department bases its forecasts on the average predictions of 15 private-sector economists. Liberal MP Ralph Goodale called on the government Wednesday to table a new fiscal update, documents usually based on fresh economist projections.
Oliver has repeatedly cited how private-sector economists consulted by the government in the spring predicted a rebound later in 2015.
April’s federal budget said the average growth in 2015 real GDP would be two per cent, followed by 2.2 per cent in 2016. The predictions were derived from economist projections taken in March.
It appears those consensus numbers may have changed.
“I think it’s quite clear that the consensus for real GDP has moved down,” Shenfeld said.
Earlier this week, Oliver also repeated how the Bank of Canada projected 1.9 per cent growth for the year. That projection dates back to April.
Shenfeld said the central bank will likely have to lower its April forecast, but he noted its unlikely an updated number would be released before July’s monetary policy report.