The Bank of Canada cut its growth forecasts for the next two years, citing steep falls in the oil price — minutes after prime minister Justin Trudeau told an audience in Davos “there has never been a better time to look to Canada” for investment.
The central bank now projects the Canadian economy to grow 1.4 per cent this year, down from its previous expectation of 2 per cent, adding that the fallout from oil makes the outlook “highly uncertain”. The bank left its key interest rate unchanged at 0.5 per cent in what was viewed as a close call, with half of economists expecting a cut to the record 0.25 per cent level seen in the financial crisis.
Mr Trudeau, speaking at the opening of the World Economic Forum in Switzerland, strove to rebrand Canada away from previous prime minister Stephen Harper’s ‘energy superpower’ rhetoric, touting refugees and diversity as the future for the country’s economy.
“My predecessor wanted you to know Canada for its resources. Well I want you to know Canadians for our resourcefulness,” he said. “We have a diverse and creative population …social stability, financial stability, and a government to invest in the future.”
Mr Trudeau has not wavered from his cheerful tone even as the economic picture has darkened since his election win in October.
The renewed sell-off in commodities and grim economic data has sent the Canadian dollar diving to a 13-year low, alarming consumers and making cauliflower prices a national talking point.
The loonie — or Canadian currency — has lost a third of its value in the past two and a half years, as the crashing oil price pulled the world’s fifth biggest oil producer into recession last year. The latest price drop makes the high-cost production of Canada’s tar sands oil “uneconomic”, according to analysts at TD Bank.
Stephen Poloz, the BoC’s governor, has warned that the fallout from oil will drain C$50bn a year from the country’s economy, or C$1,500 per Canadian.
Mr Trudeau’s opponents have criticised the 44-year old leader, saying he is devoting time to promoting his image abroad rather than dealing with a struggling economy at home.
Rona Ambrose, interim replacement for Stephen Harper as leader of the Conservative party, on Monday requested that Mr Trudeau meet her to “discuss the rapidly deteriorating economy”, adding the new government’s “sense of urgency has been completely absent”.
“We want to be hip, but we don’t want to be broke,” she said, in a jab at a New York Times article last weekend proclaiming that Canada was “suddenly hip” and Mr Trudeau had created a “Canadian Camelot”.
Ken Cundliffe, an oil patch worker, in a widely shared Facebook post this week, called on Mr Trudeau to “please forget about your image on the ‘World Stage’ for a while and focus on your own country …it’s hard to say in words how scared and desperate people are becoming”.
Economists have raised concerns as to whether monetary policy can address Canada’s oil problem amid high household debt and a frothy housing market.
Many argue fiscal stimulus is needed to reinvigorate non-resources sectors, and after Davos Mr Trudeau will return home to deliver on one of his key campaign promises: a spending programme to invest in infrastructure.
Mr Trudeau was praised in October for breaking away from his opponents and calling for a budget deficit of $10bn a year, challenging the austerity policies of his predecessor.
The stormier economic outlook since the election has spurred several economists to urge even bigger stimulus, with some calling for a $30bn yearly deficit. Parliament sits again on January 25 to plan the federal budget, which is usually released in March.
“We have countries talking about cuts and austerity …I’m the opposite. I believe governments should be investing in their economies,” Mr Trudeau said in Davos. “I can’t help but be tremendously optimistic.”
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