Solid economic growth in Canada is expected for 2007, says
RBC Economics
U.S. economic growth expected to rise after a disappointing
first quarter
TORONTO, June 22, 2007 — Canada's robust economic
performance in the early part of the year is expected to moderate,
though growth will still average a solid 2.6 per cent for
2007 and 2.9 per cent in 2008, according to the latest economic
forecast from RBC.
"Canada's economy gathered steam in the first quarter
with an annualized growth pace of 3.7 per cent, supported
by a strong domestic economy," said Craig Wright, vice-president
and chief economist, RBC. "While overall economic growth
will remain robust, the trade sector will continue to weigh
on growth as the strong Canadian dollar boosts imports and
restrains exports."
RBC notes that notwithstanding the expected tightening by
the Bank of Canada, Canadian consumers will continue to spend,
though at a slower pace in 2008. As for Canadian corporations,
they are looking at strong balance sheet conditions and are
expected to continue boosting investment in structures and
capital goods. Profitability has been helped by high export
prices for a number of key commodities produced in Canada,
the RBC report said.
"We expect the Canadian dollar to remain elevated, trading
to a high of 96.15 U.S. cents in the third quarter, ending
2007 at 94.35 U.S. cents and 89.30 U.S. cents at the end of
2008," added Wright.
The U.S. economy is picking up after a disappointing first
quarter performance, RBC said. As a result of this weakness,
RBC is forecasting 2.2 per cent growth for the U.S. in 2007,
a slight downward revision to its forecast from the previous
quarter with growth of 2.9 per cent expected in 2008.
RBC expects that the U.S. economy's underperformance in the
first quarter will prove to be the low point for growth. The
combination of firmer global demand and a weaker U.S. dollar
will likely see the pace of export growth pick up with the
trade sector turning from a drag to a support for the economy.
Consumer spending and business investment will continue to
drive the U.S. economy with little evidence of the weakness
in the housing market spreading into other areas of the economy.
RBC notes that Canada's core inflation rate popped up in
April, raising concern for the Bank of Canada's medium-term
inflation target. Stronger growth and higher-than-desired
inflation will see the Bank of Canada raise the overnight
rate by 75 basis points in 2007 and 25 basis points in 2008.
U.S. core inflation has moderated though the upside risks
require the U.S. Federal Reserve to remain vigilant. The Fed
will hold the funds rate at 5.25 per cent in 2007 and tighten
modestly in 2008 with this rate rising to 5.75 per cent by
mid-year to ensure that inflation remains contained.
A complete copy of the forecast is available as of 8 a.m.
E.D.T., at www.rbc.com/economics/market/pdf/fcst.pdf.
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For more information, please contact:
Craig Wright, RBC Economics, 416-974-7457
Jackie Braden, RBC Media Relations, 416-974-2124
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