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Bank of Canada Governor Stephen Poloz speaks during a Canada-U.K. Chamber of Commerce event in central London March 26, 2015.STEFAN WERMUTH/Reuters

Canada's economy is closing out an "atrocious" quarter, slammed by the crash in oil prices, Bank of Canada Governor Stephen Poloz warns.

The first quarter of the year ends on Tuesday, and economists have already warned it's going to look ugly when the numbers come in. Indeed, some observers have suggested the economy may actually contract, though modestly, this quarter.

In an interview with The Financial Times, Mr. Poloz underscored those concerns, highlighting why he cut his benchmark interest rate by one-quarter of a percentage point in a move that surprised the markets in January.

"When the oil shock came, it was clear we would no longer be able to close the output gap by 2016, but by 2017," the central bank chief told the news organization.

"Since we had some firepower, we took some insurance and cut rates."

Expect this to show up in Tuesday's report from Statistics Canada on how the economy performed in January alone. Economists expect that report to show that gross domestic product slipped by up to 0.2 per cent, setting the first quarter up for a lame showing.

"The first quarter of 2015 will look atrocious, because the oil shock is a big deal for us," Mr. Poloz said, citing the fact that the oil industry is slashing spending.

"In theory lower oil prices mean [putting] more money in consumers' pockets, but ... if an oil company cancels [an investment] project, laying off a worker, that guy will not have the money to buy a new pickup truck," the Bank of Canada governor is quoted by the news organization as saying.

"That spreads pretty quickly."

Some observers, of course, have pinned at least some of their hopes on the oil-induced decline of the Canadian dollar, but that, Mr. Poloz said, is slow to work its way through the system.

It is however, still expected to have an impact.

"Now that the Canadian dollar has depreciated and U.S. investment is starting to fire on all cylinders, we are reasonably confident the export side will recover," Mr. Poloz said.

"The manufacturing sector is turning around nicely," he added.

"We were losing a lot of the auto parts manufacturing to Mexico. That calculus has shifted."

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