Lower loonie expected to boost economy in third quarter
Economists say data out this week is likely to show that Canada slipped into a technical recession in the second quarter, but the contraction should be short-lived.
“A number of positive elements are coming through,” said TD Bank chief economist Beata Caranci. “Even if, like we’re expecting, we get a contraction in the second quarter, the consumption numbers are likely to be fairly healthy.”
According to Thomson Reuters, economists expect Statistics Canada to report that the economy contracted at an annualized rate of 1.0 per cent in the second quarter.
- Recession? Knowing if we’re in one matters: Don Pittis
- Alberta has lost 35,000 oilpatch jobs, petroleum producers say
- How a recession would shake up the election campaign
- Stephen Harper avoids recession label on eve of GDP numbers
Among other data expected from Statistics Canada this week are July trade figures on Thursday and the jobs report for August on Friday.
The Bank of Canada cut its key interest rate by a quarter of a percentage point to 0.5 per cent in July amid concerns about the impact falling oil prices and weak exports on the economy.
In its July monetary policy report, the central bank estimated the Canadian economy contracted at an annual pace of 0.5 per cent in the second quarter, but predicted things would pick up in the second half of the year.
Caranci says the benefit of the lower loonie to Canada’s export sector should boost growth in the third quarter.
Although exports were supposed to see a boost sooner, Caranci says the sector’s sensitivity to the loonie has diminished over the past decade as the U.S. — Canada’s biggest trading partner — has been importing more from China and Mexico.
“For every percentage point of deprecation you get to the Canadian dollar you’re getting less of a lift to exporters,” Caranci said. “You’re getting not only less sensitivity but also a more delayed response, so it’s coming in much later than we had been forecasting.”
