Thank you, Mr. Chair, and committee members. I appreciate the opportunity to be here and I look forward to the Q and A session.
To pick up after Steve's comments, there is a wide range of estimates in terms of the impact. I think it's somewhere between a small negative to a bigger negative, the more bearish view seems to come from the Bank of Canada. Our view is that it's a small negative, which I think is closer in line with the Department of Finance estimates federally.
When we look at the feed-through effects, there are three things we look at. What's the cause? As Steve suggested, it's different if it's from the supply side than from the demand side. We think much of what we're seeing is the excess supply, and price is corrected. On the demand side, if it were a demand shock then you'd get the follow-through with weakness in demand for all our exports, and not just energy, and it spreads across and it's more negative. Then there is also the depth and the duration.
Often what you find is that the best cure for low oil prices is low oil prices because the markets respond. What you see is that the demand picks up. Many countries produce oil, but all countries use the output of oil. We also see the supply cutbacks, and we've seen some data on the rig counts that suggest it's already taking place. That sets the stage for recovery in oil prices. We think that will take place as we move through the second half of this year and into next year. That's the economics of oil prices. Of course the politics of oil prices is dramatically different and that's what is keeping uncertainty high.
When we look at the impact on the economy we look at the real impact and the nominal impact. On the real side, it will be a negative for energy investment. That will be the negatives that we hear from Newfoundland and Labrador, from Alberta, and to a lesser degree from Saskatchewan.
There are offsets. What we think is that it acts as a significant tax cut for consumers, particularly in the U.S. The U.S. consumers will spend that money and that's going to lift exports for Canada. It's also positive for Canadians. We also see more money available that doesn't go in the gas tank. It goes to spending on other goods.
It's also consistent with the weakness in the Canadian dollar. There is a great deal we don't know about what drives the Canadian dollar, but over a long period of time you do see a fairly tight relationship to oil prices and to commodity prices more generally in the Canadian dollar, so a more competitive currency. That view of those offsets suggests we'll see better news on the export side, a little firmer consumer spending, and non-energy investment should pick up as we move forward.
The nominal side is where the big impact comes from, and that's the price of what Canada produces. The price of what we produce is getting weaker, so we do see nominal GDP get softer. That translates into weaker corporate profits and weaker government revenues. The potential spillover to the economy from that depends in part on what corporations do in terms of job cutbacks or what governments do when the revenue line looks a bit weaker. Are there significant tax hikes or significant spending cutbacks? I think that's the risk, going forward.
If you look at least at the provincial level, most of the provinces that have been hit are fiscally more sound than what we see in other provinces. I think the federal numbers are safe in terms of surpluses as we move forward.
The risk, as suggested earlier, is that the negatives are known in near term, and that the offsets are less certain and appear in the medium term. That's keeping uncertainty relatively high.