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Gloom among Canadian consumers deepens on economy outlook

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(Bloomberg) — The Bank of Canada’s decision to lower borrowing costs last month is deepening household concern that the economy is in for a rough ride, polling suggests.

The share of Canadians who predict the national economy will weaken over the next six months rose to 41.5 percent last week, the highest since the 2009 recession and up from 36.1 percent a week earlier, according to Nanos Research. It was the first full week of polling since the central bank made its surprise cut on Jan. 21.

Growing pessimism about the economy’s prospects may be an unintended consequence of Governor Stephen Poloz’s rate move, prompting consumers to keep a lid on spending, according to economists, including Bank of Montreal’s Doug Porter. Poloz cited the economic effects, including lower business investment, that will probably result from the more than 50 percent drop in oil prices since the summer.

“A quarter point doesn’t do that much to bolster the economy on the one side, and on the other side I think it actually heightens the level of anxiety about the economic outlook overall,” Porter said in a telephone interview Monday. “There was already enough anxiety about the economy. To have the Bank of Canada surprise one and all, I’m not sure was terribly productive.”

The share of those who see the economy strengthening over the next half year fell to 16.2 percent, from 18.3 the previous week, according to the weekly survey compiled for Bloomberg News. The gap between pessimists and optimists, at 25.3 percentage points, was the widest since the recession.

Calgary Housing

In justifying its rate decision, the central bank said the drop in oil prices was “unambiguously negative” for Canada and would hit jobs and income, while weighing on business spending and government finances.

The bank also said the slump in oil will affect housing in energy-intensive regions. Existing home sales in Calgary, the corporate hub of the country’s petroleum industry, slid 39 percent in January from a year earlier, while listings rose 37 percent, according to the city’s real estate board.

Nanos data suggest Canadians are lowering their expectations for a housing market that has been among the few recent bright spots in the world’s 11th largest economy. The percentage of respondents predicting real estate prices will fall over the next six months rose to 17.2 percent, the highest level since May 2013. The share predicting higher prices dropped to 31.2 percent. The 14.1 percentage point gap between optimists and pessimists is the narrowest since May 2013.

The Bloomberg Nanos Canadian Confidence Index, a composite measure based on four survey questions, fell for the second consecutive week, declining to 55.6 from 56.5. It reached a 19-month low of 55.1 in December.

The survey, based on phone interviews with 1,000 people, uses a four-week rolling average of 250 respondents. The results are accurate to within 3.1 percentage points, 19 times out of 20.


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