Canada’s economy expands as global risks wane: RBC

Business spending to be key driver of future growth.

September 10, 2012   by PLANT STAFF

TORONTO — The second quarter was somewhat disappointing, according to the economic outlook by RBC Economics Research, but moderate growth is expected through 2013.

The latest Economic and Financial Market Outlook by the bank forecasts that Canada was caught up in a disappointing global trend in the second quarter, monetary policy, continued business spending, supportive labour market conditions and an improving trade balance will lay the foundation for real GDP growth of 2.1% in 2012.

Noting Canada was caught up in a disappointing global trend in the second quarter, with only marginal increases in exports, declining manufacturing sales and weak consumer spending, Craig Wright, RBC’s senior vice-president and chief economist, said the economy will likely pick up as temporary factors ebb and global growth prospects improve.

RBC expects inflation will remain “benign” and the Bank of Canada will gradually begin raising interest rates next year.

“As progress is made by European policymakers to deliver a cohesive and credible plan to address fiscal and financial market imbalances, and a more moderate fiscal austerity program in the US is implemented, we will get an improved picture of international and domestic growth prospects for 2013,” Wright said.

As the global economy improves, RBC forecasts Canadian businesses will resume “aggressively investing funds” that will be a key source of growth.

Despite recent volatility in the labour market, RBC said the economy has so far generated 20,000 jobs per month (as of August), which is above the average pace recorded last year, and consistent with the economy’s growth rate.

Exporters will also gain momentum as the global economy improves, but import demand will likely slow. RBC said the trade sector – which has only supported growth in one of the past 10 years – is positioned to boost growth by one-half percentage point this year and next.

Western Canada will lead growth rankings this year and next. Alberta will top the rankings for the second consecutive year, with Saskatchewan and Manitoba following closely behind. BC and Ontario will grow at rates just above the national average, while growth in the remaining provinces will be below that average.

Click here for a copy of the report.

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