The biggest story for investors last year was the further drop in oil prices. Over the last 12 months, West Texas Intermediate crude fell by about 30 percent and sank to its lowest level in seven years. The decline is due to supply and demand being out of balance. With North America producing record levels of oil and high volumes still being pumped out elsewhere, there is excess supply in the market. “Predicting short-term price moves in any commodity is very difficult, but the supply and demand equation will come back into balance,” says Singer. This is big news, because energy is a crucial driver of our economy and our stock market.
In December, the loonie fell to its lowest level in 11 years. The reason for the decline can mostly be chalked up to two things: those dropping oil prices, and diverging interest rates. Canada is a commodity-centric economy, explains Chornous, and, over the past couple of years, foreign investors have reduced exposure to commodity-rich nations. As well, higher interest rates available on 10 year bonds in the United States, relative to Canada, has made American bonds more attractive to yield-hungry investors. A stronger U.S. economy overall, compared to many other nations, has also contributed to the greenback’s rise versus all other currencies.
Globally, the economy was less robust than many people had anticipated, primarily due to decelerating economic growth in China, says Singer. Recently, China has accounted for about 50 percent of global economic growth, but that growth rate has slowed down over the last couple of years. That’s been partly due to a slower export market and reduced investments in infrastructure. The slowdown – not just in China, but in other emerging markets, too – is one reason why global commodity prices have fallen. Still, China is growing faster than all developed economies, so it should continue to provide a positive backdrop for the global economy going forward, says Singer.
Price of West Texas Intermediate crude
Canadian dollar decline in 2015
Estimated Canadian GDP growth in 2015 (Bank of Canada)
Estimated global GDP Growth in 2015 (IMF)
Decline in Canadian corporate profits in Q3 (Statistics Canada)
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