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Special Reports

 

Canada’s economy on track for recovery in 2010: RBC Economics

Strong fundamentals expected to result in Canada leading economic growth among G-7 countries

TORONTO, December 14, 2009 — After a challenging and difficult year, the Canadian economy is set for a nation-wide recovery in 2010, according to a new report by RBC Economics. The report indicated that although the Canadian economy contracted at an average of 2.5 per cent in 2009, the stage is set for a return to positive growth in 2010.

“With the financial crisis behind us and the U.S. economy on the mend, Canada’s economic growth is expected to rise steadily throughout the next year,” said Craig Wright, senior vice-president and chief economist, RBC. “While challenges remain, a peak in stimulus and infrastructure spending across the federal, provincial and municipal governments, along with low interest rates, should result in a sustained recovery.”

According to the report, the Canadian economy is set to grow in 2010 with real GDP rising by 2.6 per cent and will continue to expand in 2011, at 3.9 per cent. The report indicated that the peak of stimulus spending will occur in 2010, with improving credit conditions fuelling growth both in 2010 and 2011.

“The price tag for the stimulus is high with large budget deficits, but it is still lower, relative to GDP, than the peaks reached in the early 1990’s,” added Wright. “Low mortgage rates and a limited supply of homes have led to an impressive rebound in housing resale activity, which should be seen as proof that consumers are feeling more upbeat, even in areas that were hit hard by the recession like Ontario, B.C. and Alberta.”

Consumer spending, however, is still being weighed down by the 8.7 per cent unemployment rate, which the report anticipates is likely to edge higher by year's end. Improvement is on the horizon in early 2010, when RBC forecasts the stage will be set for the labour market to stabilize, the unemployment rate to begin falling and the hiatus in consumer spending to end. However, with the unemployment rate set to remain historically high, inflation is expected to remain below the Bank of Canada's mid-point target of 2 per cent.

The global recession, falling commodity prices and job cuts weighed on consumer confidence throughout the early part of 2009. However, with interest rates low and confidence improving, consumer spending is projected to increase by 2.3 per cent in 2010, before accelerating to a growth rate of 2.7 per cent in 2011. The unemployment rate is expected to remain high in 2010 and average 8.7 per cent before falling to 7.8 per cent in 2011.

With the U.S. economy appearing to turn the corner, RBC expects growth in 2010 of 2.5 per cent and is anticipating the U.S. real GDP will rise to 3.4 per cent in 2011. The report notes that consumption will rise by 1.9 per cent in 2010 and 2.5 per cent in 2011, following an unprecedented two-year decline as a weak labour market has restrained activity.

A complete copy of the forecast is available as of 8 a.m. EST, 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
Paul Ferley, RBC Economics, (416) 974-7231
Matt Gierasimczuk, RBC Media Relations, (416) 974-2124


 

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12/14/2009 08:54:09