Oil pump jacks are seen next to a strawberry field in Oxnard, Calif., on Feb. 24.Lucy Nicholson/Reuters
As oil stubbornly lingers below $50 (U.S.) per barrel, troubles are mounting for the Canadian economy and the job market.
The economy is projected to expand by 1.9 per cent this year, a notable drop-off from growth of 2.5 per cent in 2014, according to a new report from Toronto-Dominion Bank.
Employment, which has been rising at the slowest pace outside of a recession over the past 40 years, is expected to edge up by just 0.8 per cent this year. And because the labour force is growing as more Canadians look for work, the unemployment rate is forecast to drift upward to 7 per cent from 6.8 per cent in February, TD said in the report.
"Despite an expected improvement in economic growth, the struggles in the job market are likely to extend well into 2016," TD economists Craig Alexander, Derek Burleton and Randall Bartlett wrote.
"Within the job market, service-sector job creation has remained solid in early 2015, but net job declines in the resources sector have been instrumental in pushing year-over-year job growth in February to under 1 per cent."
As oil prices stagnate, downward revisions for growth are spreading. The consensus view for growth among economists surveyed by Bloomberg has slipped to 2 per cent from 2.5 per cent a few months ago as oil's hit to Canadian employment, income and investment was incorporated into forecasts.
While TD's forecast is broadly in line with consensus, other financial institutions have a much more downbeat view of what's in store for the Canadian economy.
Standard Chartered Bank expects the Canadian economy to grow by a paltry 0.8 per cent this year. John Calverley, head of economics research, does not dispute that the lower loonie will be a tailwind for the Canadian manufacturing sector, but believes this will not be a 2015 story.
"The decline in the Canadian dollar is going to be very good news for manufacturers next year and the year after, but it's going to take some time to come through," he said. "The immediate effect is a pickup in U.S. tourism, but that won't provide a big enough offset."
TD anticipates that oil prices will weaken in the near-term, falling toward $40 a barrel, noting that a supply-demand imbalance has persisted in the market. The Bank of Canada has declared that lower oil prices are "unambiguously negative" for the Canadian economy. Monetary policy makers believe the damage from the commodity prices will manifest primarily during the first three months of the year, and recent data suggests that the pain has indeed started to arrive.
The number of employed Canadians fell in February, while manufacturing, wholesale and retail sales all registered large declines in January.
Job losses are projected to be predominantly borne by energy-producing provinces, especially in Alberta, where employment problems have spread far beyond the weaker firms.
Major players such as Suncor Energy Inc. and Cenovus Energy Inc. have taken measures to reduce costs. Suncor, for example, cut 1,000 people from its payroll in January, and Cenovus froze salaries while trimming its staff by 800, or 15 per cent. International firms, such as ConocoPhillips, CNOOC Ltd. and Royal Dutch PLC, are also axing jobs in Canada.
As work at companies that produce oil and gas slows, the firms that provide services to them, such as Trinidad Drilling Ltd. and Precision Drilling Corp., are also being hit hard.
The Bank of Canada is hopeful that the economy will rebound in the second half of the year, but persistently low oil prices threaten to prolong the economy's struggles.
Many smaller oil producers, for instance, have only set capital budgets for the first half of the year in hopes that a rebound in prices would leave them better positioned to expand investment in later stages of 2015. A "lower for longer" oil price environment could induce even more budget cuts in the second half of 2015, as well as further headcount reductions.
Year to date, employment growth remains positive. However, retailer Target Corp.'s exit from Canada will result in 17,000 job losses, the first of which started in March and have yet to show up in the data.
With files from Carrie Tait