Canada economy heads for recession: banks

The Canadian economy is likely headed for recession, two major banks say, predicting a successive contraction in the second quarter.

Canada, the world's fifth-biggest oil producer, has been hard hit by tumbling global oil prices and its economy shrank 0.6 per cent at an annualised rate in the first quarter.

A recession is defined as two consecutive quarters of contraction.

Nomura Bank says it expects Gross Domestic Product to contract by 0.5 per cent in the second quarter, while Bank of America Merrill Lynch says a 0.6 per cent decline in that period is likely.

"The economy has surprised to the downside this year and appears to have entered a recession in 1H 2015, even after policy easing in January," Bank of America economist Emanuella Enenajor said.

Nomura's Charles St-Arnaud said the dip was not just the result of forest fires in Alberta that forced the temporary closure of two facilities that account for 10 per cent of the oil sands' output.

"The Canadian economy is likely in recession," he said.

The downturn is likely to hit the Canadian dollar, which could drop down to 70 cents on the US dollar by the end of the year.