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Economic growth hinges on exports: RBC

Forecast based on US growth and growing demand for imports in the EU.

June 11, 2014   by PLANT STAFF

Demand for exports will strengthen the pace of hiring and move the labour market closer to full employment.

Demand for exports will strengthen the pace of hiring and move the labour market closer to full employment.

TORONTO — Exports will be central to the Canada’s economic growth this year and next, according to RBC Economics.

Its Economic and Financial Market Outlook forecasts real GDP growth of 2.4% in 2014 and 2.7% in 2015.

The view for Canada is based on US economic growth being broadly based and slowing global import demand that started in early 2012 will reverse course, said Craig Wright, RBC’s senior vice-president and chief economist. “With global demand improving, the weakening Canadian dollar will provide that extra lift needed to shift the export sector into more than a bit player in Canada’s economic growth story.”

RBC says demand for Canadian exports will strengthen the pace of hiring and move the labour market closer to full employment. Against this backdrop, income will rise faster than household mortgage and credit growth, which should cap the upside in the debt-to-income ratio. And the cost of servicing debt remains historically low, staving off increases in delinquencies and bankruptcies by consumers.

A strengthening in demand from abroad will also underpin business confidence in 2014 and 2015, says RBC. The latest Bank of Canada business outlook survey showed a growing number of firms experienced faster sales growth over last year with the majority expecting to see sales increase further this year.

The housing market is set to slow later this year as sales and construction activity gear down for a transition from investment in residential real estate to spending on non-residential projects. Housing will provide limited support to the economy next year as home resales ease, prices stabilize and building activity slows.

RBC’s forecast anticipates the economy will quickly bounce back from the weather-related slowing in the first quarter and grow at an accelerated pace for the remainder of the year.

Wright says this will limit the downside risks to core inflation, and should be sufficient enough to convince the Bank of Canada that conditions warrant a tightening policy before the end of the year, although the Bank is likely to maintain a policy rate of 1%.

RBC expects both the headline and core inflation rates will approach the 2% target in the second half of 2015.

Of the provinces, Alberta will far outpace all others.

“The contrast between booming conditions in Alberta and a more moderate pace of growth elsewhere across Canada has rarely been as stark: we expect Alberta to be the only economy to grow faster than the national average in 2014,” added Wright.

Click here for a copy of the report.

 


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