Economy Strong in 3rd Quarter

Bank of Canada - front

CBJ – The country’s economy did surprisingly well in the 3rd quarter, topping most financial analysts’ expectations coming in at a growth of a 2.8% annualized pace. However, no sooner had the good news been released when some economists were already putting cold water on the celebration, noting that the impact of lower oil prices will have an adverse effect in the coming months.

The price of oil broke below $70 per barrel yesterday and it’s expected it could go down to $65 very soon, and that may not be the end. OPEC and the United States are in a high-stakes game of chicken to see who will blink first. The U.S. is weaning itself off a dependence of Middle East oil, instead opting to explore its own oil reserves of shale gas and using the controversial fracking technique to increase production.

According to figures from Statistics Canada, the increase in Canada’s gross domestic product was higher than the 2.1% that had been forecasted. On a monthly basis, the economy grew in September by 0.4%.

“This bounty of good news is almost precisely countered by the coming hit to incomes, government revenues, consumer prices and growth from sagging crude prices, which is a net negative for Canada overall,” Bank of Montreal chief economist Doug Porter wrote in a report. “The good news is that the economy was in a surprisingly very good place heading into the energy price storm.”

Oil prices have plummeted more than 30% since the summer to their lowest level since early 2010. The drastic drop will have a major impact on the budgets of some provinces, notably Alberta and Newfoundland. The federal government says its budget is based on oil selling at $70 per barrel, and so is not in nearly the same dire situation in that regard – at least not yet.

Through all of this, the Bank of Canada is expected to keep its key overnight interest rate at an even 1% at next Tuesday’s announcement.

@CanBizJournal

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