The past year has not been kind to Canada. Oil crashed over 65% from its 2014 high of $105 to $35 in the past year.
The country endured a technical recession as economic growth turned negative in the second and third quarters. The jobs picture was no less grim as the unemployment has rose from 6.6% to 7.1%.Though down for the year, the S&P/TSX Composite suffered less than oil
The Bank of Canada, with Poloz at the helm, tried to cushion the blow by cutting interest rates twice bringing the overnight rate to 0.50%.
A decline in both Interest rates and oil presented a perfect storm for the loonie to fall over 14% on the year.
What can we expect from Canada over the course of 2016?
We asked some of our top contributing analysts about what may lie ahead:
Colin Cieszynski of CMC Markets
The Bank of Canada appears unlikely to bring in more stimulus unless things really go off the rails or oil falls further
Heading into 2016, the outlook for the Canadian economy and markets remains dependent on what happens with oil and gas prices. The negative impact of the oil price crash was the main story for Canada in 2015 sending the Alberta economy into a tailspin following the loss of many high-paying oilpatch jobs.
The oil price plunge also dragged down the loonie, however, which can have positive effects on the economy over the longer term, some of which may emerge more clearly in 2016. For example, in 2015, the lower CAD had a positive impact on film and TV production, and in time can benefit many sectors including manufacturing and export, tourism and retailing.
If the oil price stabilizes and rebounds, we could also see CAD and Canadian energy stocks rebound from depressed levels. Rebounds are likely to be limited though so any outperformance may be short lived, unless signs of real effort from energy producing countries to stabilize the market emerge.
Despite recent talk of negative interest rates and QE, the Bank of Canada appears unlikely to bring in more stimulus unless things really go off the rails or oil falls further. Allowing CAD to float freely and fall with the oil prices can do a lot of the central bank’s work for it.
Jelani Smith
Canadian home prices are likely to cool, whereas the TSX is starting to show signs of an upturn
In theory, lower interest should rates increase the prices of assets, as lending becomes cheaper. This was evident in 2015, as average home prices rose to $454,976 in October 2015, a 8.3% increase on a year over year basis (CREA). Going into 2016, the Canadian housing market is likely to cool, which is already evident in today’s market, where the majority of the growth is from the Vancouver and Toronto area – Canada’s most active housing market. Without these two markets, average housing prices would have risen only 2.5% on a year over year basis. Some regions have showed signs of slowing down – such as Regina, where home prices are down 4.29% on a year over year basis as of October 2015 (CREA).
Currently, this is the worst performing year for the TSX since 2011. The big five Canadian banks are showing signs up of an upturn. The big five Canadian banks are currently down over 7% YTD, however, on average they have gained over 2.3% in the last three months. A similar pattern is also noticeable in other large-cap Canadian stocks, such as Bell (TO:BCE), and Canadian Tire Corp Ltd (TO:CTCa). In 2016, Canadian home prices are likely to cool, where as the TSX is starting to show signs of an upturn. Investors continue to keep a close eye on the Bank of Canada rate – since an interest rate increase would negatively affect the TSX performance and home prices across Canada.