Royal Bank says lower oil prices could help Canada's economy

Tonight's first order of business,with oil prices touching new lows Monday, a bit of a silver lining is being offered up by one of Canada's big banks.

RBC's economists suggest that on balance, lower oil could add up to a positive for the Canadian economy makingRBCanoutlieramong big bank economists in Canada.

The rationale? A combination of benefits from lower oil prices,including helping the U.S. economy to leaving dollars in Canadians' pockets, will outweigh the damage caused by lost revenue to a major part of the economy.

The theorydoes have a number of caveats,but given that oil prices show no signs of stopping their decline,we sure hope this more rosy view is right.

Amanda Lang

Here's a look at why RBC thinks cheap oil could be a net benefit to the Canadian economy.

The bank acknowledges that lower oil prices could harm the Canadian economy, but here's the case for how the benefits might outweigh the risks:

• First, cheap oil is a "positive shock" to the U.S. economy, boosting consumer spending and business investment for our largest trading partner.
• Second, a weaker loonie means Canadian exports are more competitive.
• Finally, cheap gas prices here at home could kickstart Canadian consumer spending, boosting GDP.

RBCstill sees risks to this rosy prediction, though. Investment in oil projects is likely to slow, and there's no guarantee those Canadian exporters will take advantage of the weakloonie.

Any boost to the Canadian economy depends on consumers opening their wallets and spending the money they save on gas.