Canada's economy under greater pressure from a deepening
U.S. recession and weakening commodity prices, says RBC
Aggressive policy actions will foster recovery in 2010
TORONTO, March 12, 2009 — As the recession
in the U.S. economy intensifies, Canada's downturn deepens
with no uptick in growth expected until the second half of
the year, according to a report by RBC Economics.
"Canada's economy is definitely feeling the weight of
the U.S. recession with the biggest quarterly contraction
in growth in 17 years in the final quarter of 2008,"
said Craig Wright, senior vice-president and chief economist,
RBC. "Canadian and U.S. policymakers have become increasingly
aggressive in implementing measures to reverse the downturn
and boost growth. In response to these aggressive steps, we
expect Canada's recovery to start in second half of 2009 and
gain momentum in 2010."
RBC notes the deepening U.S. recession and ongoing pressures
on financial markets have weakened both the Canadian business
and consumer sectors, reflecting the higher cost of capital,
reduced demand for motor vehicles and falling commodity prices.
Canada's weakening labour market has added to the pressure
on consumer confidence as Canadians worried about the implications
of a deepening U.S. recession and financial market crisis
on Canada's growth prospects, said the report. This erosion
in confidence weighed heavily on housing market activity with
sales falling and prices slumping.
The Bank of Canada slashed the policy rate to 0.5 per cent
in March 2009 and vowed to maintain it "at this level
or lower" until the economy is growing sufficiently to
close the output gap and thereby mitigate the downside risks
to the inflation outlook.
The U.S. recession deepened markedly in late 2008 with real
GDP contracting at a 6.2 per cent annualized pace. The retrenchment
of both consumers and businesses, combined with a sharp pull-back
in trade flows, caused the serious decline in economic output.
RBC forecasts another significant contraction in the first
quarter of 2009 at a 4.8 per cent annualized pace with substantive
improvement unlikely until late in the year.
On a positive note, the Obama Administration passed the $787
billion American Recovery and Reinvestment Act. The
Act provides tax relief, funds for infrastructure spending
and money for states, health and education and is aimed at
limiting the downturn in the labour market by boosting spending.
The Federal Reserve set the funds rate at a target range
of zero to 0.25 per cent in mid December and reconfirmed their
commitment to supporting the financial system and the economy.
The Fed also committed to maintaining "exceptionally
low levels of the federal funds rate for some time."
RBC expects that this range will be maintained throughout
2009 and most of 2010.
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.
The RBC Economics Provincial Outlook assesses the provinces
according to their projected growth in real GDP, employment,
and retail sales, as well as their unemployment rates and
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For more information, please contact:
Craig Wright, RBC, Economics, 416-974-7457
Jackie Braden, RBC, Media Relations, 416-974-2124