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The steep drop in oil prices that took hold months ago was just a taste of things to come for Canada’s economy and its royalty-dependent governments.

LUCY NICHOLSON/Reuters

Since the start of this year, when the benchmark price for a barrel of oil dropped below $50 (U.S.), it's been clear there would be ripple effects through Canada's economy and its royalty-dependent governments.

In response, some denizens of the C-Suite started tempering their forecasts early in the year. In June, one in three executives said Canada was due for a contraction.

However, the steep drop in oil prices that took hold months ago was apparently just a taste of things to come. Slowing growth in China and market volatility have been added to the mix. Even though it has been about a year since we started adjusting to low oil prices, the past quarter has seen a pronounced shift in the outlook for Canada. Many are now wondering whether the first half of 2015 was just the end of the beginning.

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Forecasts suggest oil will stay near current prices going into 2016. Few executives predicted as much just a quarter ago and few see any upside for their companies. Some might benefit from freight cost improvements, but many more will be negatively affected. Few are cheering an ultra low dollar.

These assessments help explain a 20-point drop this quarter in the number of company executives who expect Canada's economy to grow in the next year. Just more than half believe Canada is in a recession. Just less than half expect Canada will stay that way going into 2016.

All of this just happens to coincide with a federal election campaign. The C-Suite executives surveyed listed a range of issues they would be interested in hearing more about from the parties: defence and security, environmental regulations, aboriginal land and resource agreements and the labour market. There is also some concern that a new government will reverse recent tax changes. But the top issue by far is the economy.

Monetary policy has a role here. Few in the C-Suite oppose the Bank of Canada's July rate cut. Where there is room for vigorous debate is around fiscal policy. Many in the C-Suite are prepared to set aside restraint in favour of more capital investments in the economy. On the opposite side is a nearly equal proportion who believe government should focus on spending restraint to help ensure a balanced budget.

The enduring question for Canada these next few months may be whether Prime Minister Stephen Harper's assessment holds true: that the contraction in the economy is confined to the energy sector while the outlook for the rest remains positive. How Canadians assess that question in the coming weeks might make this election an especially pivotal point for the economy and the policies that follow.

Alex Swann is vice-president of Gandalf Group.

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