Net exports are increasingly important for Canada's growth.
TORONTO: Economic growth was subdued in the first quarter but RBC Economics Research expects Canada to gain ground as the year progresses.
The RBC Economic Outlook report forecasts strong gains in employment, housing market activity, business investment and a pick-up in exports for GDP growth of 2.6%.
“We expect that gains in consumer spending will be complemented by stronger business investment flows. Exports should also pick up as U.S. demand recovers,” said Craig Wright, RBC senior vice-president and chief economist. “On balance, conditions for growth are positive, supported by a continuation of a low interest rate environment and a Canadian financial sector that is healthy and ready to provide credit.”
RBC highlights strong gains in employment during March and April (140,000 jobs) following eight months of volatile employment data. Meanwhile, the unemployment rate continues fall, though RBC notes the pace slowed from earlier in the recovery.
Still, the bank said recent improvements in labour market conditions might stimulate a return to the labour force and limit the pace of decline in the unemployment rate.
Canadian businesses are in a good position, according the report. They’re holding high cash balances and having access to financing at low interest rates.
Recent surveys indicate that Canadian businesses intend to invest in capital goods and non-residential construction, which RBC says will account for about one-third of GDP growth in 2012 and 2013.
And exports are going to take on an increasingly important role in the country’s economic growth, said Wright. RBC expects the US economy to strengthen, a “soft landing” in China and an eventual return to growth in the euro zone that will “support the fastest pace of Canadian export growth over a two-year period since 2000.”
With relatively sound domestic conditions, RBC expects the Bank of Canada will be in position to raise interest rates later this year, under the assumption that Canadian financial markets will weather the uncertainty associated with the European debt crisis.
Momentum in the US economy is also expected to continue to accelerate, with real GDP forecast to expand by 2.5% in 2012 and 3% in 2013.
At a regional level, Western Canada will continue to dominate growth. Alberta is forecast to take the lead for the second consecutive year, with Saskatchewan and Manitoba following closely behind. BC and Ontario are expected to grow at rates close to the national average, while the remaining provinces are positioned to grow below the national average.