Improving Global Economy Expected to Support
Canadian Growth: RBC Economics
TORONTO, September 17, 2013 Following
a period of Canadian economic underperformance that ended
in late 2012, the economy is expected to grow at an above-potential
pace in the second half of 2013 and through 2014, according
to the latest Economic
and Financial Market Outlook issued today by RBC Economics.
Fuelled by persistent support from low interest rates coupled
with strong demand for exports, RBC projects real GDP growth
of 1.8 per cent in 2013 and 2.8 per cent in 2014.
Exports increased at the fastest pace since late 2011 in
the first quarter of 2013 and continued to grow in the second
quarter. RBC expects even stronger Canadian export figures
as the global economy perks up.
"The improvements in the U.S. housing market, rising
motor vehicles sales and increasing U.S. business investment
in machinery will augment the rising demand for Canadian exports
coming from the Euro-area and the U.K. as the pace of economic
growth improves," said Craig Wright, senior vice-president
and chief economist, RBC.
RBC says that, so far in 2013, employment data has been extremely
volatile; however, the six-month average provides a more accurate
view of Canada's labour market conditions. As of August 2013,
Canada had an average gain of 12,100 jobs per month for the
previous six months.
"We expect this pace of job creation to rise slightly
on average through the forecast," said Wright. "This
continuing support to household spending along with the improving
external environment and rising investment will allow overall
GDP growth to strengthen in 2014."
The unemployment rate has been oscillating in a narrow band
between 7.0 and 7.2 per cent since November 2012, most recently
registering at 7.1 per cent in August 2013. RBC expects the
gradual narrowing of the output gap to be accompanied by a
decline in the unemployment rate to 6.6 per cent by the end
Monetary policy remains supportive for the economy, with
the Bank of Canada's overnight rate at 1.0 per cent. RBC's
bottom-line scenario assumes that Canada's economy reaches
full potential in the first half of 2015, when inflation is
expected to approach the 2.0 per cent target. Further, RBC
anticipates housing activity will moderate and the recently
established slowing trend in mortgage credit growth will continue
to support what the Bank of Canada called a "constructive
evolution of household balance sheet imbalances".
RBC states that against this backdrop, the Bank of Canada
will begin to temper the policy stimulus in the second half
of next year to accommodate the lags between changes in the
policy rate and economic activity. To that end, RBC forecasts
the overnight rate will remain at 1.0 per cent in 2013 with
50 basis points of increases likely by the end of 2014.
The Canadian dollar has recently been trading off investor
sentiment, as waves of risk appetite and risk avoidance continue.
Commodity prices are range bound belying a steady decline
in prices for minerals and metals and recovery in energy prices.
Still, RBC indicates that commodity price movements are providing
no clear direction for investors in Canada's currency.
"As long as we don't see a strong upward shift in commodity
prices, we expect the Canadian dollar will maintain its weakening
trajectory for the remainder of 2013," said Wright. "Next
year, as the economy propels itself forward, the loonie is
likely to regain ground against the U.S. dollar."
On the provincial front, RBC maintains the view that natural
resource-intensive provinces will continue to top the growth
rankings in 2013. Newfoundland and Labrador will lead the
way, followed by Alberta, Saskatchewan and Manitoba. The pace
of economic growth in all other provinces will be below the
national average of 1.8 per cent.
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:
Wright, RBC Economics Research, 416 974-7457
Ferley, RBC Economics Research, 416 974-7231
Lalonde, Communications, RBC Capital Markets, 416 842-5635