Oilpatch woes impacting Canadian economy, central bank says

The Bank of Canada acknowledged Wednesday the struggles of theoilpatch are weighing on the broader economy, adding that investment in the sector is "projected to weaken further."

The central bank, which announced it will keep its key interest rate unchanged at 1.75 per cent, said global benchmark oil priceshave been about 25 per cent lower than expected since October.

"Here in Canada, lower oil prices have reached the point where they will have material consequences for our macroeconomic outlook," Bank of Canada governor Stephen Polozsaid.

• No change: Bank of Canada keeps benchmark interest rate at 1.75%

Worries about oversupply and slowing global demand for oil are also reflected in the bond and equity markets, the bank said.It also directed attention to acostly gap between Canadian and U.S. benchmark oil prices.

"While price differentials have narrowed in recent weeks following announced mandatory production cuts in Alberta, investment in Canada's oil sector is projected to weaken further," the bank said in a statement.

However, overall, the bank expects the impact of the oil price decline to be about one-quarter the size of that during the oil price plunge that hit in2014 andcontinued through2016.

Concern over oil prices came to a head last fall in Alberta as the price gap between Canadian crude and U.S.benchmarks hit newrecords, topping$50 US a barrel in October, due torising oil production, export bottlenecks and American refinery maintenance.

A number ofoil executives and politicians warned of a broader impact on the economy.

This month, Alberta began enforcing mandatory production cuts on its largest oil producers in a bid to clear the oil glut.

• Alberta premier announces 8.7% oil production cut to increase prices

Todd Hirsch, chief economist at ATB Financial, called it "encouraging" that the Bank of Canada is taking note of the issues in the oilpatch and their broader impact.

"I know it's really fashionable right now in Alberta to feel that nobody outside the province cares about us," Hirsch said.

"Well, the Bank of Canada certainly does understandthe energy economy and they understand that this is a national problem, not just an Alberta problem."

Hirsch saidPoloz's remarkssounded"more dovish," leading to speculation "they may not raise rates at all in 2019."

And that should helpAlbertans as many expectedrates to go up, he said.

"It makes it more comfortable for all those people who are either carrying debt or wanting to take on some mortgage debt," Hirschsaid.

"There's not a lot of welcomed news these days ...but, in Alberta, we'll take whatever breaks we can get. And holding steady on interest rates is one break I think we need right now."

Robert Mark, portfolio manager at Raymond James in Toronto, said Poloz'sremarks on the struggles ofthe oilpatchwere appropriate. He thinks the issue, which he called a "crisis" for the economy,has deserved to get more attention than it has.

Mark said the energy industry is a big part of the Canadian economy andso,in light of the current challenges, there's some reason to be less aggressive in monetary policy.

"You can't have that kind of bloodshed in terms of prices and differentials and job losses and all the things that come with it without having negative ramifications," Marksaid.

TheCanadian economy has been performing well overall, the bank said Wednesday.

"Growth has been running close to potential, employment growth has been strong and unemployment is at a 40-year low," said the Bank of Canada release.

It said exports and non-energy investment are projected to grow solidly.

However, the bank said, household spending will be dampened further by slow growth in oil-producing provinces.

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