RBC maintains forecast for a return to positive growth in 2009
Prospects rising in both U.S. and Canada
TORONTO, June 15, 2009 — Following a first
quarter dominated by negative economic news, positive indicators
are beginning to emerge from the gloom, according to a new
report by RBC Economics. The report predicts that, while Canada's
economy experienced its largest one-quarter contraction since
1991, this likely will prove to be the worst quarterly showing
in this recession.
"Although Canada's economy slumped in early 2009 and
will likely remain in recession this second quarter, we believe
it is ripe to enter its recovery phase later this year,"
said Craig Wright, senior vice-president and chief economist,
RBC. "Improving global growth prospects, alongside extraordinarily
low interest rates and government stimulus, are expected to
allow Canada to return to positive growth in 2009, with a
moderate recovery in 2010."
Leading indicators suggest that the worst has also passed
for the global recession, with recent data pointing to a recovery
later this year. In the U.S., the sharp declines in Q4 2008
and Q1 2009 GDP are forecast to be some of the largest in
recent memory, but some encouraging signs are beginning to
appear. Buoyed by low interest rates, an easing in credit
conditions and the government's fiscal stimulus package, the
U.S. housing market is showing some stability and consumer
confidence is rising, pointing to the possibility of a moderate
turnaround for the American economy by the second half of
"The benefits of significant fiscal and monetary policy
stimulus are starting to have traction," Wright noted.
"There is an unprecedented amount of money bolstering
the world economy. What we will be watching is the impact
this spending has on labour markets, as well as household
and business confidence. The degree of impact will be a crucial
factor in shaping economic recovery."
The RBC report forecasts that Canada's economy will contract
by 2.4 per cent this year, due in part to the substantial
5.4 per cent annualized contraction of the real GDP in the
first quarter. While wage growth was unexpectedly firm as
the year began, incomes were affected by a sharp decline in
hours worked, bringing further financial pressure to bear
on consumers already coping with elevated debt levels and
diminishing asset values. Consumer confidence, while improving
modestly in recent months, will continue to be constrained
by increasing job losses, which totalled 360,000 since last
October, and a rising unemployment rate that is expected to
peak at 9.2 per cent by the end of 2009. The report anticipates
that the Canadian dollar, which rallied in the spring, likely
will trend towards the bottom half of an 85 to 92 U.S. cent
range for the remainder of this year and towards the upper
end through 2010.
In the U.S., 6.0 million jobs have been lost since the recession
began, pushing the unemployment rate to 9.4 per cent, its
highest level since 1983. Also worrying to the U.S. economy,
the unemployed are out of work for a longer period of time
than in past recessions.
Despite the sizeable cumulative job losses, recent data suggest
the rate of decline is slowing. In addition, the pace of home
sales appears poised to pick up as affordability improves,
reflecting a combination of dropping prices and one of the
lowest 30-year mortgage rates on record. U.S. consumer spending
increased, after six months of steady decline, and the RBC
report forecasts that domestic demand will continue to climb
in the second half of 2009, supported by low interest rates,
firmer credit markets and fiscal stimulus.
A complete copy of the forecast is available as of 8 a.m.
The RBC Economics Provincial Outlook assesses the provinces
according to economic growth, employment growth, unemployment
rates, retail sales and housing starts.
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For more information, please contact:
Craig Wright, RBC Economics, (416) 974-7457
Robert Hogue, RBC Economics, (416) 974-6192
Stephanie Lu, RBC Media Relations, (416) 974-5506