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Economy riding out choppy global waters: RBC

Expect the Canadian economy to turn in slightly less robust growth in 2011, thanks to a contraction in the second quarter combined with softer growth in the EU and the US, but the economy will pick up in 2012, according to RBC Economics.


September 12, 2011
by PLANT STAFF

TORONTO: Expect the Canadian economy to turn in slightly less robust growth in 2011, thanks to a contraction in the second quarter combined with softer growth in the EU and the US, but it will pick up in 2012, according to RBC Economics.

RBC downgraded its forecast for the Canadian economy in its latest Economic Outlook, which projects growth to be 2.4% this year, down 0.8% from the June forecast.

“Financial market volatility certainly took a toll on business and consumer confidence this summer. Our expectation that the global economy will avert another downturn, however, should temper the slide we’ve been seeing in the equity markets and in commodity prices,” said Craig Wright, senior vice-president and chief economist at RBC.

“We are cautiously optimistic that Canada’s economy will continue to pick up speed next year, growing at a rate of 2.5%.”

The report says the Bank of Canada will follow the US Federal Reserve and keep its interest rate low until mid-2012 when rate increases are likely, while declines in commodity prices will bring inflation down, which will remain in the bank’s core range, taking the pressure off its tightening campaign.

Wright notes the labour market has more than fully recovered from the loss experienced in the downturn. As of August, Canada had 164,000 more people employed than during the pre-recession peak with gains concentrated in full-time jobs.

RBC reports business investment is on an upswing, growing at double-digit rates throughout 2010 and the first half of this year, thanks to improved profits, better access to financing and a stronger Canadian dollar.

At the provincial level, Saskatchewan leads growth, followed by Alberta and Newfoundland and Labrador. Manitoba is projected to improve its economic standing in 2011, while Ontario, BC and PEI will fall slightly below the national average. Quebec and the remaining Atlantic provinces trail the others.

“In the second half of this year, we expect both the Canadian and the US economies to rebound,” said Wright. “Global growth will buoy commodity prices and fears of rate cuts will turn into expectations of rate hikes and the Canadian dollar is likely to further appreciate in 2012.”

RBC Economics has cut its US growth projection by 1% to 1.7% in 2011, because of data showing a deeper recession and a weaker recovery. One-off factors such as poor weather conditions restricting non-residential construction activity, the Japanese disasters cutting into auto production and sales, and gasoline price reducing income to spend on other goods and services also cut into growth.

RBC is projecting US growth of 2.5% in 2012.

Click here for a copy of the RBC Economic and Financial Market Outlook and here for the RBC Economics Provincial Outlook.

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