Changing fortunes of the US economy and the loonie will act as catalysts.
TORONTO — Demand for Canada’s exports will pick-up as the global economy recovers, fuelling real GDP growth over the next two years, according to the latest economic outlook from RBC Economics.
RBC is forecasting 2.5% growth this year and 2.7% in 2015.
“For the last four years the household sector has been the key driver of Canada’s economic growth. We expect that to change in 2014. As the global economy continues on its path to recovery, exports will become increasingly central to Canada’s growth story,” said Craig Wright, RBC’s senior vice-president and chief economist.
The report notes international trade contributed 0.3% to growth in 2013, which represented the first positive contribution since 2001. Export volumes were 5% below their pre-recession peak at the end of 2013. Much of the underperformance attributable to the subpar US recovery.
Competitiveness issues, such as the strong loonie also affected growth.
“It’s the changing fortunes of both the US economy and the Canadian dollar that will act as catalysts for stronger exports in the year ahead,” added Wright.
RBC expects the loonie will trade at US$0.87 by the end of the year and at $0.85 at year-end 2015.
Historically, a 10% depreciation boosts export volumes by 3.3% in the following two years.
The report says the household sector has paused and is unlikely to be a significant factor in the strengthening in the economy in 2014. Spending on goods and services is expected to accelerate, rising by 2.5% this year and 2.3% in 2015.
RBC notes the rate of growth in most of the provincial economies will accelerate this year. Alberta will lead, well ahead of Ontario, the only other province to grow at or above the national rate. The other provinces will grow at varying paces below the national average.
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