The Canadian economy contracted in the first half of 2015, dragged down by a sharp retrenchment in oil & gas investment and drilling activity. A number of temporary disruptions, including auto sector retooling, shipping port bottlenecks and wild fires, also contributed to the slowdown. The economy is showing somewhat better momentum heading into the second half of the year. Nevertheless, persistent weakness in commodity prices and soft global demand remain hurdles to a much stronger performance.



On balance, output growth is expected to average just 1.0% this year, with a more pronounced weakening in oilproducing provinces. Despite the first half contraction, the labour market has continued to add jobs at a moderate pace, with positive momentum in construction and services offsetting restructuring in the oil patch. Vehicle sales remain near record levels, and housing activity is reasonably buoyant, underpinned by historically low borrowing costs. However, consumers are expected to be relatively cautious spenders in the year ahead in the face of weak wage growth, limited pent-up demand and elevated household debt burdens. Consumer confidence and major purchase intentions have recently softened, primarily on concern over labour market prospects.



Manufacturing and non-energy exports have been slow to gain traction alongside underperforming US and Chinese economies, but are poised to record stronger gains with an increasingly competitive Canadian dollar and rising auto sales and residential construction south of the border. Business investment remains weak with energy sector cutbacks and moderate sales growth weighing on capital spending plans, despite healthy corporate finances and favourable financing costs, though increased infrastructure investment is providing some support. Headline inflation has receded this year alongside falling gasoline prices, but remains around 1%, a relatively high rate compared with other advanced nations. Core inflation has trended up into a 2-2½% y/y range, reflecting the passthrough of a weaker Canadian dollar to a range of imported goods.