OTTAWA, Jan 20 (Reuters) - Canada will adjust to lower
commodity prices in three phases over the next five years, with
the impact of lower incomes to be felt more strongly later on
and economic growth by 2020 being 2 percent lower than it
otherwise would have been, according to staff at the Bank of
Canada.
Restructuring in the resource sector is the dominant factor
in the first phase as collapsing profits prompt firms to curtail
business investment and employment, a staff analytical note
said.
That restructuring phase should peak in the middle of this
year, then stay roughly constant. The impact of lower incomes
will start to hurt domestic consumption, while the lower
Canadian dollar will boost non-commodity exports.
When the economy reaches the last stage, equilibrium, it
will be consistent with potential output that is 2 percent lower
than the control case of if commodity prices had stayed at
mid-2014 levels.
By then, the impact on growth rates will dissipate, but
total exports are expected to be 0.2 percent below where they
would have been without the drop in commodities.
The analysis used the assumption that commodity prices stay
roughly flat over the timeline. It used data up to November
2015, so did not account for the most recent slide.
The analysis was released at the same time as the bank
decided not to cut interest rates as concern about the rapid
fall in the Canadian dollar clashed with an economic slump.
Recently elected Prime Minister Justin Trudeau on Wednesday
told the World Economic Forum in Switzerland that Canada's
economy consisted of much more than natural resources, though he
acknowledged the challenge of lower oil prices.