Trade and Investment to Support Canada's Economy
In 2013: RBC Economics
Real GDP to increase to 1.9 per cent in 2013
TORONTO, June 19, 2013 Canada's economy
started 2013 growing at a solid clip, as energy production
continued to recover and the U.S. economy proved to be more
resilient to a recession than was feared, according to the
and Financial Market Outlook issued today by RBC Economics.
Following an increase in Canadian GDP output of 1.7 per cent
in 2012, RBC raised its real GDP growth forecast to 1.9 per
cent through 2013 and expects a firmer 2.9 per cent rise in
The first quarter of 2013 saw a marked turnaround in the
domestic economy, with Canada realizing a solid 2.5 per cent
annualized gain, supported by a sharp turnaround in net trade
which added 1.4 percentage points to the quarterly growth
rate - the largest contribution since mid-2011.
"The improving trade balance underpins our forecast
for Canada's economy to grow at rates which should help propel
the economy to full capacity in early 2015," said Craig
Wright, senior vice-president and chief economist, RBC. "Stronger
demand for autos, houses and industrial machinery from the
U.S. will help sustain the lift in export growth that Canada
experienced so far this year for the remainder of 2013."
Businesses reduced the pace of investment in structures and
capital goods in recent quarters, likely a reflection of the
uncertainties surrounding the effect of U.S. government's
fiscal restraint on U.S. demand for Canadian goods. Easy financial
conditions in Canada coupled with indications that the U.S.
will clear the fiscal cuts in good stead will support a rebound
in business spending in the quarters ahead, RBC says.
"Company balance sheets are healthy - business financing
made headway in early 2013 and will continue to provide Canadian
firms with the capacity to invest at an accelerating rate
in 2014," said Wright. "After rising an expected
3.7 per cent this year, business spending will strengthen
to 7.3 per cent in 2014."
RBC says export recovery and business investment are necessary
to keep the economy on track and to offset a softer housing
market. Residential investment is forecast to decline 2.4
per cent this year and 0.7 per cent in 2014. This slowing
partially reflects overstated strength in 2012 when residential
investment jumped 6.1 per cent as home sales increased - likely
to avoid a tightening in mortgage lending and fear of mortgage
Cooling activity in the housing market led to a reduction
in the pace of mortgage debt growth to the slowest level since
2001 in April, easing concerns that the economy is vulnerable
to a significant shock. In fact, RBC indicates that debt service
costs remain historically low and one-third of households
continue to be debt free.
"The firm labour market is another factor mitigating
the risk that a debt-associated downturn is brewing,"
noted Wright. "With employment at an all-time high and
household income and savings on the rise, we expect household
debt to remain in check, which should limit the weakness in
the housing market and support consumer spending."
An easing in household credit growth coupled with a low level
of inflation set the stage for accommodative monetary policy
in early 2013. RBC says that new Bank of Canada Governor,
Stephen Poloz, will likely maintain interest rates at the
current level for the remainder of 2013, and expects the Bank
will start to reduce the amount of stimulus in the second
half of 2014.
Globally, RBC expects the world's economy to continue growing
at a modest pace in the first half of 2013 as a result of
Europe's ongoing struggle to get out of recession and the
U.S. economy absorbing government austerity measures. Growth
is likely to accelerate later this year, however, as the benefits
from structural changes combined with very supportive interest
rates boost global economic momentum.
After a generally disappointing finish to 2012, the economic
performance across the majority of Canada's provincial economies
improved in early 2013. RBC forecasts that natural resource-intensive
provinces will remain at the top-end of the growth rankings
in 2013 and that stronger exports will be the mainstay for
many of Canada's provinces.
Newfoundland and Labrador will outpace all other provinces
by a long shot to stand atop the 2013 provincial growth rankings.
The Prairies - Alberta, Saskatchewan and Manitoba - will continue
to grow at the top-end. The remaining provinces are expected
to stand slightly below the national average for growth.
A complete copy of the RBC
Economic and Financial Market Outlook is available as
of 8 a.m. ET. A separate publication, RBC
Economics Provincial Outlook, assesses the provinces according
to economic growth, employment growth, unemployment rates,
retail sales, housing starts and consumer price indices.
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For more information, please contact:
Craig Wright, RBC Economics Research, 416 974-7457
Paul Ferley, RBC Economics Research, 416 974-7231
Elyse Lalonde, RBC Corporate Communications, 416 842-5635