A senior Bank of Canada official says it will likely take more than two years for the country's economy to fully adjust to the commodity price shock.
Speaking to an Edmonton business audience, deputy governor Lynn Patterson warned that the impact of loss of income to thousands of resource sector workers has yet to work its way through the economy.
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"Not only do these jobs pay well, they also tend to call for longer work days and, therefore, a greater number of hours worked. For example, in 2014, average hourly earnings and average hours worked in the resource sector were, respectively, about 40 per cent and 25 per cent higher than the national average," she said.
She predicts a lowering of aggregate household incomes throughout Canada as a result. That will extend into 2017, slowing consumer spending and putting a drag on growth.
"Adjustments to large negative shocks take time. Although painful for many, the shifts are signs of a dynamic economy," Patterson said.
Falling loonie helps
Similarly, the impact of a falling Canadian dollar that resulted from low commodity prices will take more time to take effect,
The weaker dollar both makes Canadian exports cheaper and boosts the Canadian-dollar revenues of non-commodity exporters that price their goods in U.S. dollars, she said.
It will eventually lead to a boost in non-commodity exports, but only where the economy rebuilds capacity lost during the boom years when the dollar was high, Patterson added.
Patterson said the Canadian economy will find "a new balance," several years from now, but said she did not expect the commodity sector to regain the full strength it had in 2014.
Instead, its importance to the economy will decline toward its pre-boom level.
Commodity sector outlook
"By 2020, the sector could account for roughly 40 per cent of exports, compared with about 50 per cent in 2014. Similarly, the sector's share of business investment could fall to 40 per cent, compared with 56 per cent in 2014," she said.
Patterson emphasized that the Canadian economy is resilient, as it is based on a broad set of natural and human resources and powered by a wide range of industries.
The Bank of Canada did make its two rate cuts in response to the weakening of the resource sector.
The central bank's role is to "set policy that will help keep inflation low, stable and predictable, so that Canadians can plan and invest with confidence," she said.