Oil shock will hurt but will be short lived, Poloz says - Action News
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Oil shock will hurt but will be short lived, Poloz says

The negative impact that cheap oil has had will be intense but short-lived, as Canada's economy is set to rebound through the spring and summer, the head of Canada's central bank says.

Central bank governor tells U.S. audience he expects economic rebound later in 2015

The negative impact that cheap oil has had will be intense but short-lived, as Canada's economy is set to rebound through the spring and summer, the head of Canada's central bank says.

In a speech in Washington on Friday, Stephen Poloz said the impact of lower oil prices hit the economy hard in the first quarter of the year. But over time, that impact is expected to soften and may lead to some benefits down the line in the form of a stronger U.S. economy.

"Starting in the second quarter we think the positives will be more important than the negatives, and certainly in the second half of this year, this shock should be fully behind us," Poloz was quoted by Bloomberg as saying.

Complex issue

"What we're living in right now is the most complicated situation you can design for a central banker to have to deal with," he said. "It's one thing if it's a relatively small part of your economy, but in Canada it's a relatively big part."

Describing the U.S. economy as having"great fundamentals," Poloz said some of the negative effects of lower oil prices on Canada's economy will be mitigated by the improving fortunes of America, which is the world's largest economy and Canada's biggest trading partner.

The comments were similar in tone to what he said earlier this month, when he left the bank's benchmark interest rate where it was but implied that the first rate cut in January may be enough to achieve the desired effect once U.S. strength is factored in.

At least one major Canadian bank suggested Friday that that optimistic tone may be warranted. "History may be on the [Bank of Canada]'s side, even if today's risks are potentially putting the Canadian economy into uncharted waters," Scotiabank said in a note to clients.

The bank looked at the last five comparable oil price shocks and found that in all those instances, the Canadian economy ended up rebounding stronger than expected, and more quickly after the oil price hit a bottom, that is.

Although factors like a weak loonie may be a bit different this time, on the whole, Scotiabank says "the Bank of Canada's forecast does not stand out terribly from past experiences on average."