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Bank of Canada warns economy’s recovery from oil shock will take more than two years

The Bank of Canada is studying whether low oil prices could spur more innovation and its estimate of potential output will be updated in next month's Monetary Policy Report.

EDMONTON – Canada will require more than two years to regulate fully towards the stop by oil prices, a senior Bank of Canada official said on Wednesday, signaling no quick end to a shock which has roiled the economy.

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Deputy Governor Lynn Patterson said a simulation run by the bank suggested it might be several years prior to the economy found a brand new balance. The plunge in crude prices pushed the oil-exporting nation into a mild recession last year, prompting policymakers to chop rates of interest twice, although the bank is expected to stay on hold the following month.

“Our best guess would be that the full adjustment will require more than two years, our normal forecast horizon,” Patterson said inside a speech in Alberta, home to Canada’s struggling oil sands.

The simulation run by the bank suggests that the proportion of the commodity sector in the economy will decline, and may account for about 40 percent of exports by 2020, in contrast to about Half in 2014, Patterson said. The sector’s share of economic investment could similarly decline.

But the extent to which potential economic growth is permanently lower is determined by just how much capacity is rebuilt within the non-commodity sector, Patterson said.

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