OTTAWA -- The negative impacts of low oil prices that have struck Western Canada will reverberate across the entire national economy, the head of the Bank of Canada said Thursday.
But governor Stephen Poloz estimates the latest drop in crude prices will likely have less bite across the country than the 2015 oil-price crisis, which contributed at the time to a slight, technical recession.
In prepared notes for a speech in Toronto, Poloz said oil and gas production now makes up just 3.5 per cent of Canada's economy, compared with six per cent in 2014.
"It is already clear that a painful adjustment is developing for Western Canada, and there will be a meaningful impact on the Canadian macroeconomy," Poloz said in an address to be delivered at a breakfast event hosted by CFA Toronto.
"That said, given the consolidation that has taken place in the energy sector since 2014, the net effects of lower oil prices on the Canadian economy as a whole, dollar for dollar, should be smaller than they were in 2015."
Looking at the positive side, Poloz said the ongoing "oil-price shock" has also arrived at a time when Canada's economy is running close to full tilt and the unemployment rate is at a 40-year low.
The stronger economy has put the central bank on a rate-hiking path -- to keep inflation from running too hot -- for more than a year. It raised its trend-setting interest rate at its October meeting for the fifth time since the summer of 2017.
But on Wednesday, the bank left the rate unchanged as it underlined fresh negatives, such as the recent drop in oil prices and an unexpected decline in business investment.
Market watchers, many of whom had expected the bank to increase the rate in January, now believe the recent economic developments will delay the timing of future rate hikes.
"In terms of the Canadian economy, it is fair to say that the data released since our October (monetary policy report) have been on the disappointing side," said Poloz.
Poloz added that he remains hopeful that business investment will rebound now that much of the uncertainty surrounding the North American free trade has been eased following the signing of a new agreement between the United States, Mexico and Canada.