The Globe and Mail reports in its Thursday edition low oil prices have sucked both income and investment out of
the economy to a greater extent than previously anticipated.
A Globe editorial says it looks like the Canadian economy
surprised by contracting during the first half of the year. This is what is known as a recession. The Bank now expects growth of just
over 1 per cent for 2015, roughly half the level it was predicting just
a few months ago. As for inflation, the Bank's best reading has it below its
2-per-cent target, and unlikely to rise to that level until mid-2017.
Ditto for the overall economy.
Lower interest rates do carry a risk, namely that Canadian households
will take advantage of them to borrow more, translating into
more consumer debt and higher housing prices. The more immediate
worry is that Canadian consumers and businesses will do
the opposite: They will pull back on spending and investment,
causing the economy to contract further. All of this could eventually
spark a self-reinforcing cycle of economic contraction, housing
price adjustment and more contraction. With big question marks hanging over China and Europe, Stephen Poloz made the right call.
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