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Is it possible that Canada's economy won't be sucked down into the oily vortex after all?

That might seem hard to believe, given the growing concern from many pundits (I'll include myself in there) about oil's potential to stop Canada's economic recovery in its tracks. But so far, the economy has weathered the oil storm remarkably well.

Yes, the oil-dependent segments of the economy are taking it on the chin; no chance we were going to avoid that. But the economy's rotation away from resources and toward manufacturing and non-energy exports – which is both long overdue and, frankly, healthy – may be gaining some timely traction.

Consider Statistics Canada's wholesale trade report for December, released Wednesday. Wholesale sales spiked 2.5 per cent in December from November, matching their biggest one-month gain of the past five years. While the gains were broadly based, the key growth area was in the country's biggest and most important non-energy export sector: Motor vehicles and parts, which surged 5.5 per cent in December and have risen four months in a row. Building materials, another key non-energy segment, jumped 3.6 per cent.

The much-better-than-expected wholesale trade report follows last week's strong data on December manufacturing sales (up 1.7 per cent in December, despite a plunge in manufactured petroleum products), a better-than-expected December merchandise trade report (export volumes jumped 3.5 per cent) and stronger-than-expected employment growth in January (up 35,000). All of them indicated improving strength outside of the energy sector.

The stimulative effects of the Bank of Canada's rate cut deserve no credit for any of this; the data predate the bank's bold move. (even the January employment data, which came from a survey conducted a few days before the Jan. 21 rate decision.)

But even if they didn't, the Bank of Canada has stated repeatedly that rate moves take as long as two years to work their way through the economy and have their full impact. That doesn't mean they don't have partial impact over shorter time periods (most notably on market perceptions, and by extension the value of the currency), but a quarter-percentage-point cut isn't much of an economic force after only a few weeks.

This means the economy has been rotating to greater export-oriented manufacturing growth without the added stimulus of lower rates. The lower currency is almost certainly having some effect, but the bulk of the impact of both the cheaper loonie and the reduced interest rates are still months ahead of us.

While Bank of Canada Governor Stephen Poloz bluntly characterized oil's plunge as "unambiguously negative" for the Canadian economy, it's noteworthy that a senior official in the U.S. central banking system, Federal Reserve of Philadelphia President Charles Plosser, this week called cheap oil an "unambiguous benefit" for the U.S. economy. Mario Draghi, head of the European Central Bank, has also declared oil's plunge "unambiguously positive" for the European economy.

We're being out-unambiguoused, 2-to-1. Bottom line, this may be bad news for a segment of Canada's economy, but unquestionably good news for the buyers of the vast majority of our exports. The cheaper loonie will only serve to enhance this demand for Canadian goods in the coming months.

Even the January home sales downturn, reported this week by the Canadian Real Estate Association, was mostly a function of plunging markets in oil-rich Alberta and Saskatchewan; Other key housing markets remained solid. While that's little consolation if you're in Calgary, it is another sign that the broader economy outside of the oil patch is still holding up rather well.

Doug Porter, chief economist at Bank of Montreal, recently argued that the Canadian economy actually arrived at this oil shock in pretty good shape. He noted that real gross domestic product growth in the past six quarters has averaged 2.5 per cent annualized, which is better than its 25-year trend (2.3 per cent) and above the economy's estimated potential growth rate of 1.9 per cent (that is, the pace at which it can grow while operating at full capacity while maintaining steady inflation).

Given all this, the Bank of Canada rate cut does, indeed, look increasingly like just what Mr. Poloz called it: An "insurance" policy against the risk that the oil shock could derail an economy that was on its way to closing its output gap and returning to full speed.

We still have a long way to go before we're through the worst of the oil shock and will know whether the insurance policy, or even further insurance, was needed. But the early returns suggest that as oil's days as Canada's key economic driver have ended in a thud, the non-energy exports have, indeed, begun to step up to fill that void. The rotation that Mr. Poloz has long envisioned has come much more rapidly and unpredictably than he would have wanted. But it may be happening all the same.

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