© Colin Cieszynski
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I do not think Canada is going into a recession, though I believe we will have a near miss. In my opinion, parts of Canada will go into a recession this year but not necessarily the whole country. What happens with Canada when we have the oil price crash, and we have seen this in the past as well, is that a lot of the negative impact comes very quickly and it is primarily declines in revenues through oil and gas and slides in other materials that Canada exports. Another issue is a layoff in lots of high paying jobs in the oil patch, which we saw to work through in the first half of the year, and lately we have had a bit of the second wave of that as well.
However, what we also had with the oil price crash is a substantial drop in the Canadian Dollar to the tune of about 20%, which has a positive impact on other parts of the Canadian economy. For example, when the Canadian Dollar went up, the manufacturing sector in Ontario and Quebec has been positively crashed and had chance to recover with the lower Dollar. In addition, we had the things like tourism and cross-border shopping when the Canadian Dollar was up at par, encouraging more Canadians for tourism and shopping; however now, when the Dollar comes back down, it discourages Canadians going south and encourages Americans to come north.
Similarly, film and television production has absolutely taken off in Vancouver and Toronto this year, which is a growing trend as it is, but it has really picked up again with the Dollar coming down, making production cost cheaper in Canada. Hence, Canada does get benefits; however, it is just that the positive benefits of a lower Canadian Dollar take longer to assert themselves, rather than the negative impact from lower oil prices, which hit first.
The BoC decided to keep its benchmark interest rate at 0.5% at the October meeting after reductions in January and July in order to keep inflation as close to 2% target as possible. Do you believe that this decision was appropriate enough at this time and why? What factors have influenced the BoC's verdict?
In fact, the BoC did nothing because it was two days after the federal action. Thus, it did not matter what was happening with the data, they were not going to do anything, especially because during the election campaign it was not certain what the result was going to be. We could have just easily ended up in a similar situation to what Portugal had during their election with three parties vying for power and two parties trying to form a coalition to kick out the incumbents, but we have not. Instead, Canada came up with the change of majority of government, which I assume to be good. This move has actually supported the Loonie over the last couple of weeks, but overall, though we do look to the December meeting, we are still getting mixed numbers from Canada, some of which have been a little bit soft; however, employment and inflation have still been positive. In any case, we will see what happens if the jury still load on December.