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Economic growth is picking up the pace: RBC

Business is looking up for manufacturers, particularly those in Ontario. Canada’s economy is expected to pick up steam this year with stronger growth in the US, according to a report from RBC Economics Research.


March 20, 2012
by PLANT STAFF

TORONTO: Business is looking better for manufacturers, particularly those in Ontario. Canada’s economy is expected to pick up the pace this year with stronger growth in the US, according to a report from RBC Economics Research.

Growth in 2011 was a moderate 1.8%, but the RBC Economic Outlook says signs of strength in the US economy, low interest rates, solid balance sheets across corporate Canada and elevated commodity prices are setting the stage for continued expansion with real GDP of 2.6% in both 2012 and 2013.

“The country’s main engines of economic activity from the early days of the recovery – consumer spending and residential investment – are likely to play supplementary roles as the economy shifts into slightly higher gear on the road ahead,” said Craig Wright, RBC’s senior vice-president and chief economist.

The report says high commodity prices and strong corporate balance sheets will boost business investment’s overall contribution to economic growth by 0.8% and 0.9% this year and next. As the US economy improves, Canada will benefit from improving demand for exports such as autos, machinery and lumber.

“The recent encouraging developments in the US economy are welcome news in Ontario and for the auto industry in particular,” said Wright. “We expect the strengthening US labour market will continue to spur auto sales south of the border, boosting demand for Ontario-made motor vehicles and parts. Ontario’s economy relies disproportionately on the US market and this turnaround in the automotive sector will play an important role in boosting provincial exports.”

Exports account for 30% of GDP, and approximately three-quarters of them go to the US.

RBC forecasts exports will return to the pre-recession peak level in 2013, with net exports boosting growth 1% in 2012 and 0.3% in 2013. However, it says the tightening of fiscal policy will likely have a restraining effect on economic growth.

Sluggish job growth of 2,000 per month will give way to stronger hiring going forward, says the report. RBC predicts the unemployment rate will fall to 6.9% by the end of 2013.

Regionally, Western Canada will top growth rankings this year, led by Saskatchewan and Alberta with Manitoba following closely behind. Newfoundland and Labrador, BC and Ontario are expected to grow at rates close to the national average. Growth in Quebec and the remaining Atlantic provinces will be below the national average.

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

Click here for the RBC Economics Provincial Outlook.