MISSISSAUGA, Ont. — Canada’s recession is already over and its economy should grow through the rest of the year and into 2016.
That was the assessment of Carlos Gomes, senior economist with Scotiabank, when speaking today at the Surface Transportation Summit.
“Yes, economic conditions did weaken in the first half of the year. We had two negative quarters, but it was a decline that was fairly concentrated within a couple sectors,” Gomes said. “In particular, the oil and gas sector accounted for most of the decline.”
Gomes said the oil and gas sector saw business investment spending drop by more than 30% this year.
In 2016, Gomes said consumer spending is likely to strengthen and he noted Canada’s employment picture has improved this year.
“That is setting up conditions for improvements across Canada as we move into next year,” Gomes said. He is projecting economic growth of 1.7% in 2016, up from about 1% this year.
However, he said he’s still concerned about the metals/minerals sector and the machinery sector, which has seen a sharp drop in demand because of low oil prices. “But I think overall manufacturing activity should start to pick up and that’s a definite positive,” Gomes said.
Globally, Gomes is also expecting stronger growth next year from most nations, including the US, Canada, the Euro-zone, Japan, India and Mexico – the notable exception being China, which could see growth slow further.
Still, China is growing at about a 6% clip and its consumer segment is strengthening and playing a stronger role in the country’s economy, helping offset manufacturing declines, Gomes pointed out.
Global growth has moderated to about 3%, but Gomes said it should pick up to about 3.5% in 2016.
Canada’s economy and its exports should be buoyed by continued strength in the US, Gomes said. US employment is advancing at its strongest pace since 2000 and US leading indicators “remain very positive,” Gomes said. US consumers have deleveraged and the combination of low interest rates and low energy prices has given them more money to spend.
“Coming into the downturn (of 2009) the US was overextended and that has changed significantly,” Gomes said.
Canadian manufacturers have significant backlogs to work through, which should bolster freight volumes as those goods are ready to be shipped to market. And the auto sector, experiencing a record year in Canada and the second best year on record in the US, is expected to remain strong in 2016, Gomes said.
“The improvement in household balance sheets in the US is enabling them to go out and make major purchases,” he said.
Looking specifically at truck and rail transportation, Walter Spracklin, equity research analyst, RBC Capital Markets, said he expects carrier profitability to improve, even though there’s adequate capacity in the market. Spracklin said the driver shortage could tighten capacity but he hasn’t seen it translate into a strong pricing environment for carriers to this point.
Spracklin said it’s difficult to predict pricing in the trucking sector, but rail can pass on rate increases of 3-4% annually “like clockwork.”
Variables such as segment, region, lanes, etc. will have a major impact on trucking profitability in 2016, Spracklin concluded.
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