Statistics Canada’s June 30, 2015 announcement regarding the nation’s economic results for the month of April, measured in terms of national Gross Domestic Product, has many bankers and financial institutions predicting another Bank of Canada interest rate cut sometime during 2015.

Although real GDP fell by only 0.1% in April, the decrease marks a fourth consecutive monthly decline.  Canada’s poor economic performance of late is owed, in part, to the fall in oil and gas extraction as conventional crude and non-conventional oil companies combined for a 3.4% month-over-month production cutback.  Statistics Canada pointed to maintenance shut downs and production difficulties as the main causes of the oil-industry slump. David Parkinson for the Globe & Mail, however, places the blame more squarely on “sharply lower oil prices”.  Parkinson also notes that the Bank of Canada had previously forecast a second quarter economic bounce back, and quotes CIBC economist Andrew Grantham’s explanation for why such predictions might not have come to fruition:

…we are yet to see the positives that should be offsetting weakness in the energy sector … Lower gasoline prices are doing little thus far to spur retail spending, while the weaker loonie is doing little to boost manufacturing.

Not all sectors suffered the same economic fate during the month of April. Wholesale trade experienced GDP growth of 1.6%, marking the second consecutive month in which an increase was observed.  The recent increase in wholesale trade is largely attributable to machinery, motor vehicle, equipment, and supplies wholesaling increases – notably including transactions related to the agricultural industry, which will likely experience a boost during spring planting months.

Despite minor bright spots, Pamela Heaven of the Financial Post called the GDP announcement by Statistics Canada a “shocker”, and her article consolidated a number of economist, banker, and financial analyst reactions shortly following the GDP announcement.  Many of the financial analysts cited by Heaven, such as BMO’s Douglas Porter, have predicted that the economic contraction is likely to result in a cut to the national interest rate; three of the economists specifically forecasted an easing by 25 basis points.

In response to the Statistics Canada announcement and reactions from well-known Canadian economists, columnists from both the Globe & Mail and the Financial Post uttered the unpopular word “recession” in their respective articles.  That said, Parkinson also pointed to a more optimistic point of view, lauded by Matthieu Arsenal, senior economist of the National Bank of Canada: “As bad as this may appear, the economy is not on the verge of recession”.  Arsenal reportedly went on to predict “above potential growth” for the second half of the year, and deny that any further monetary stimulus was yet needed in Canada.

With the next interest rate announcement scheduled for July 15th of this year, the market will not have to wait long to see if the Bank of Canada follows calls from economists regarding an interest rate cut.  How any possible decision – and its potential impact on the cost of credit – could affect the lagging private equity market in Canada is a tale to be told on a much longer timeframe.

The author would like to thank Noel Dekking, summer student, for his assistance in preparing this legal update.