The Canadian economy continues to be weighed on by the continuous weakness in oil prices. Economic activity in the non-energy sector is likely to have moderated as recent data prints have been weaker than projected. Moreover, there has been a renewed turmoil in the oil markets due to worries regarding China amidst crude supply glut, which will continue to keep prices subdued in the coming months.

"Our equity team expects a drop of 28% in exploration and production spending in 2016, similar to 2015's -32%", says Barclays.

The energy sector capex is expected to be impacted by lower oil prices, constraining investment consumption and growth. The Bank of Canada will be required to lower rate by at least 50bp in 2016 in order to partially offset the persistent fall in crude oil prices.

"We expect a 25bp cut in the O/N rate next week and a total of at least 50bp of cuts during 2016", says Barclays.