Justin Trudeau’s new government will need to deal with an economy that’s expected to grow more slowly than previously forecast.

The Bank of Canada announced Wednesday that it would leave its key interest rate at 0.5 per cent, in part because it has lowered expectations for growth.

The bank now says the economy will expand at a rate of two per cent in 2016, down from the 2.3 per cent previously forecast. Growth expectations for 2017 have also been revised downward, from 2.6 per cent to 2.5 per cent.

Senior Deputy Bank of Canada Gov. Carolyn Wilkins said that lower commodity prices and the resulting decline in the energy sector are dragging down the economy. The bank expects spending by oil companies to fall another 20 per cent.

The oil shock is already having a big impact on Alberta, where the NDP Finance Minister Joe Ceci said Wednesday that an election promise to balance the province’s books by 2018 will no longer be possible. Ceci has pushed back that timeline by one year, to the 2019-2020 budget.

Although Trudeau has promised to spend heavily on infrastructure and social programs to “kick-start” the economy, Bank of Canada Gov. Stephen Poloz said the spending might not have an immediate impact.

“How the money impacts the economy can be more gradual than the simple shock,” Poloz said.

The situation isn’t all gloomy, however, according to the bank. The low loonie has boosted exports, and Universal Child Care Benefit cheques sent earlier this year by the Conservative government are expected to help buoy consumer spending.

With a report from CTV Parliamentary Correspondent Richard Madan