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Special Reports

 

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 2009.

"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. EDT, at
www.rbc.com/economics/market/pdf/fcst.pdf. The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales and housing starts.

- 30 -

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


 

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06/15/2009 08:33:47