Domestic Strength to Propel Canada's Economic Recovery into
2011: RBC Economics
However, recovery more subdued than past cycles
TORONTO, December 15, 2010 — Canada's economic
recovery soldiered on in the third quarter, although the pace
of growth slowed for the second straight quarter after losing
traction in the spring amid softness in the U.S. economy,
according to the latest Economic Outlook report from RBC Economics.
However, with financial market conditions improving and
with monetary policy remaining very accommodative, the pace
of quarterly growth is expected to quicken from the recent
downshift. As a result, GDP is expected to come in at 3.2
per cent in 2011, slightly faster than 2010's projected growth
of 3.1 per cent. RBC notes that projected growth this year
and next represents the fastest pace over the past four years
and forecasts that GDP will rise by 3.1 per cent in 2012.
"The mid-year economic slowdown reflected a pullback
in housing investment, which fell after five consecutive quarterly
increases, and a mild downturn in exports. However, financial
conditions remain supportive of domestic growth which will
be the main engine of the expansion going forward," said
Craig Wright, senior vice-president and chief economist, RBC.
"While the recovery is proving to be weaker than those
previously experienced, economic growth in 2010 and 2011 is
a substantial improvement from the contraction of 2.5 per
cent experienced in 2009."
While consumers have been a mainstay of the recovery to-date,
the pace of consumer spending is likely to slow from 2010's
solid clip with the slack being taken up by business investment
in capital goods. In fact, RBC expects that Canadian businesses
will play a pivotal role in the economy's growth momentum
as the recovery matures and pressures persist on businesses
to boost productivity.
Though the recovery is expected to continue, the pace will
remain moderate, implying only limited progress in lowering
the unemployment rate which is expected to close out 2010
under eight per cent and decline only to 7.4 per cent by the
fourth quarter of 2011. Beyond next year, RBC forecasts that
the unemployment rate will continue to moderate slowly, reaching
7.0 per cent by the end of 2012.
RBC notes that inflation has been volatile in recent months
reflecting the pass-through from the harmonization of sales
taxes in Ontario and B.C. and movements in energy prices.
As of October, the core rate, which excludes these factors,
stood at 1.8 per cent and the all-items inflation rate rose
to 2.4 per cent. The excess capacity that was generated during
the economic downturn is slowly being whittled away and RBC
expects that the output gap will be eliminated mid-year 2012.
According to the report, the persistent strengthening in
the Canadian dollar from its early 2009 low aligns closely
with the decline in import prices which have fallen by eight
per cent as the Canadian dollar gained 19.4 per cent against
the US dollar. As a result, import growth has solidly outpaced
exports resulting in the trade sector acting as a weight on
the overall level of GDP output for most of 2010. RBC forecasts
that the Canadian dollar will continue to be well supported
relative to the US dollar remaining close to parity through
RBC forecasts U.S. GDP of 2.7 per cent in 2010 and 3.3 per
cent in 2011 as the downdraft in U.S. growth in the middle
of the year appears to have come to an end with the number
of upside surprises in the economic data solidly outpacing
the downside recently. Support to near term growth is also
expected from recent rounds of increased monetary and fiscal
stimulus, sending growth in 2012 up to 3.6 per cent.
At the provincial level, RBC expects Saskatchewan to take
over the top spot in the provincial-growth rankings from Newfoundland
& Labrador in 2011 after trailing behind it in 2010. Alberta
is also expected to move ahead of Newfoundland & Labrador
in 2011. Ontario is expected to slip to fifth position in
2011 from fourth in 2010. Manitoba is expected to move up
in the rankings in 2011 to fourth spot after a modest recovery
in 2010. Nova Scotia, New Brunswick and Prince Edward Island
are projected to remain at the lower end of the scale in 2010
and 2011. The forecast for growth in British Columbia is fairly
similar to the national average, and the forecast in Quebec
is lagging slightly below the national average both this year
A complete copy of the forecast is available as of 8 a.m.
A separate publication, 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:
RBC Economics Research, (416) 974-7457
RBC Economics Research, (416) 974-7231
RBC Media Relations, (416) 974-8810