Why Justin Trudeau should act immediately amid the oil carnage

Perhaps Justin Trudeau’s young government should act sooner rather than later.

Unemployment stands at an uncomfortable 7.1 per cent, Alberta faces what at least one forecast indicates may be a second year of recession, and economists are trimming their projections for Canada’s economic growth to well below 2 per cent for 2016.

And those forecasts generally assume higher oil prices, rather than the sustained rout we’re seeing now.

Mr. Trudeau and his Liberals swept to power promising to act where, they said, the Conservatives failed miserably.

The Prime Minister plans budget deficits to fund infrastructure spending but we don’t yet know the details or the timing.

Some observers speculate that the Bank of Canada is waiting to see what the government unveils before deciding whether it needs a third interest rate cut since oil prices collapsed and knocked the economy for a loop.

“However, after almost two months in power, there has still been no announcement of the size and details of the fiscal stimulus by the new federal government, and one could start to wonder if the economy can wait the months it will need for the impact to be felt,” said Charles St-Arnaud of the Nomura economics group.

“An announcement would have initial positive effects through its impact on expectations, but it takes time for effective fiscal policy to be planned and implemented, so it could be a while before stimulus enters the economy and multipliers kick in,” he added in a recent report.

“The longer the announcement of the fiscal stimulus is delayed, the more likely the BoC will cut rates to provide a buffer.”

This morning is but another example. And we’ll hear what Bank of Canada Governor Stephen has to say when he delivers a widely watched speech in Ottawa this morning.

Economists are counting on federal stimulus to juice the economy as oil prices remain depressed, manufacturing is suffering, and there’s little other than a weak Canadian dollar to help things along.

“Almost all of the expected modest pickup in growth in 2016 will stem from increased federal government spending (largely on infrastructure), offset somewhat by cutbacks at the provincial level,” said senior economist Sal Guatieri at BMO Nesbitt Burns, which recently trimmed its forecast for economic growth to just 1.6 per cent this year.

Here’s how he sees it: Federal infrastructure spending should boost growth by about one-quarter of a percentage point this year. We’ll get details in a March or April budget, which would mean “shovels hit the ground” possibly in the summer.

But summer is still far away, and it’s bitterly cold now, in more ways that one.

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