UPDATE 1-Bank of Canada: oil shock recovery will take more than two years

(Adds details from speech, background on ecomony)
EDMONTON, March 30 (Reuters) - Canada will take more than
two years to fully adjust to the drop in oil prices, a senior
Bank of Canada official said on Wednesday, signaling no quick
end to a shock that has roiled the economy.
Deputy Governor Lynn Patterson said a simulation run by the
bank suggests it will be several years before the economy finds
a new balance after a plunge in crude prices pushed the
oil-exporting nation into a mild recession last year, prompting
policymakers to cut interest rates twice.
"Our best guess is that the full adjustment will take longer
than two years, our normal forecast horizon," Patterson said in
prepared remarks in Alberta, home to Canada's struggling oil
sands.
A simulation run by the bank suggests that the share of the
commodity sector in the economy will decline, and could account
for about 40 percent of exports by 2020, compared with about 50
percent in 2014, Patterson said. The sector's share of business
investment could similarly decline.
But the extent to which potential economic growth is
permanently lower will depend on how much capacity is rebuilt in
the non-commodity sector, Patterson said.
The bank is studying whether low oil prices could spur more
innovation and its estimate of potential output will be updated
in next month's Monetary Policy Report.
The bank's model also suggests it takes up to two years for
the full effect of exchange rate movements to be felt, meaning
that the non-commodity sector will start to see more benefit
from the sharp drop the Canadian dollar.
There are also signs that labor markets might be adjusting
to the economic shift more quickly than in the past, as data
suggests Canadians have been more willing to move to where jobs
are, Patterson said.
So far in 2016, the bank has held rates and is expected to
remain leave them unchanged at its next meeting in April.
BOCWATCH
Patterson reiterated that the bank's updated economic
forecasts released next month will account for fiscal measures
announced in the federal government's budget last week.