Economic forecast trimmed due to low oil prices; TD predicts another interest rate cut
Toronto – TD Bank is cutting its 2015 forecast for Canada’s economy due to the drop in oil prices and predicting that the Bank of Canada will cut its key interest rate by another quarter of a percentage point in March.
TD says it now expects the Canadian economy to grow by 2% this year compared with its expectation in December for 2.3% growth in 2015.
TD estimates growth in 2016 will come in at 2.2%.
The Bank of Canada surprised financial markets last week when it cut its overnight rate target by a quarter of a percentage point to 0.75%.
Economists had expected to hold the rate at 1%, where it had been since September 2010, but governor Stephen Poloz said low oil prices were “unambiguously negative” for the Canadian economy as he announced the rate cut.
The price of oil, which is trading for about US$45 a barrel, is less than half of its highs of last year.
In its report, TD said lower oil prices will take a bite out of both output and incomes.
The bank predicts the US benchmark price will average US$47 this year and US$65 in 2016, down from its December forecast of US$68 in 2015 and US$80 next year.
“Lower corporate profits will likely lead to a contraction in business investment and weaker employment growth relative to our December forecast,” the TD report said.
“However, the story will play out very differently in various regions of the country, with oil-producing provinces bearing the brunt of the downward revisions.”