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Impact of Low Dollar, Oil Must Play Out: BoC

12/01/2016


​​MNP's TAKE: The Bank of Canada says there is no quick or easy fix to the combined economic shocks of low oil prices and a weak loonie, advising Canadian to keep a stiff upper lip until the problems "work themselves out." While the central bank has stepped back from the table, bowing to the power of oil prices on Canada’s economy, oilfield services companies find themselves wondering how much tighter they can pull the belt.

Key to making it through this extended downturn is ensuring you know every financial detail of your operation, from the smallest output and input. Drill down to detail the breakeven costs for every job or sale, determine correct pricing for products and services and place a realistic value on capital assets ahead of a sale. Keeping track of and managing these details will help enhance your competitiveness in a market awash in capital-constrained companies.

To learn more about reducing costs and maximizing returns, contact Jeremy Rondeau at 306.770.3679 or [email protected]


 FROM THE CANADIAN PRESS

OTTAWA - The Bank of Canada says overcoming the economic suffering inflicted by the commodity-price shock essentially boils down to one main option: ride it out.

In a speech, central bank governor Stephen Poloz said no simple policy response will fix the problem, although some measures can buffer the negative effects of factors such as the steep slide in oil prices.

"The forces that have been set in motion simply must work themselves out," Poloz said in a prepared text of a speech at Ottawa City Hall.

"The economy's adjustment process can be difficult and painful for individuals, and there are policies that can help buffer those effects, but the adjustments must eventually happen."

Under Poloz's leadership, the central bank lowered its trend-setting interest rate twice in the last 12 months to help cushion the blow of the oil slump.

He noted that Canada's the dollar has tumbled along to roughly the same levels they stood at over a decade ago.

"It is not a coincidence that the Canadian dollar is about where it was back in 2003 and 2004 — oil prices are also about where they were back then," said Poloz, who also listed some of the benefits of a lower loonie.

At the time of the speech, the loonie was trading below 71 cents US, about where it was in mid-2003 as the currency when it was recovering from a historic low of 61.79 cents US set in January 2002.

A benchmark oil price ducked under US$34 a barrel on Wednesday, the lowest level since 2008, but was even lower on Thursday. Poloz noted that oil prices were around US$25 per barrel in 2002.

Almost like it was 2002 all over again, Poloz said the complex economic changes have led to higher consumer spending, falling employment and lower investment in the resources sector. Non-resources sectors, meanwhile, have seen rising employment and investment, Poloz added.

This article was written by The Canadian Press from The Canadian Press and was legally licensed through the NewsCred publisher network.