TD Economics believes that the good will balance out the bad in the Canadian economy in the year ahead.
After the Canadian economy grew by 2.4 per cent in 2014, the bank is predicting real GDP growth in Canada will inch up just over 2 per cent by the end of 2015 and into 2016.
“We expect growth in output, income and employment to continue to soften through the first half of 2015, before improving gradually along with oil prices,” said TD in their quarterly forecast. “As a result, we anticipate that the Canadian economy will weather the current oil-price storm, with calm seas expected to follow the current choppy waters.”
What of those choppy waters? The job market is expected to suffer as a result of falling crude prices for the next two to three quarters. The jobless rate is expected to hover around 7 per cent over the next few years.
Debt levels will remain high for Canadian households. The household debt-to-income ratio rose to 163 per cent in the fourth quarter of 2014 and is expected to continue to grow.
Meanwhile, oil is expected to drop to the $40 USD mark over the coming months, though the bank anticipates prices will recover at $65 USD per barrel, on average, in 2016.
The relationship between housing and falling oil prices would lead to a decline in the real estate markets of certain regions of the country. While British Columbia and Ontario are expected to stay strong in the year ahead, the same can’t be said for oil-producing provinces. Nodding to their Canadian Regional Housing Outlook released in January, the bank predicted home prices would likely fall by as much as 10 per cent in Calgary, Edmonton and St. John’s over 2015 and into 2016.
Lower oil prices could, overall, leads to greater savings in Canadian households and the weakening Loonie could shore up Canada’s manufacturing and tourism sectors.
The Bank of Canada’s very low overnight rate of 0.75 per cent is “not only good for the housing market, but also other interest-sensitive sectors, such as auto sales, which continue to hover near record levels.”
The bank believes the interest rate will hold steady until the end of 2016.