Canadian economic growth to strengthen modestly
in 2013 as global uncertainty eases: RBC Economics
- Real GDP growth to increase to 2.4 per cent in 2013
- Interest rates set to rise modestly in second half
of next year
- Significant downside risk expected in near-term
- Global economy to strengthen moderately in 2013
TORONTO, December 13, 2012 - As downside risks to
the global economy ease, the Canadian economy is headed for
a period of gradual improvement in 2013, according to the
latest Economic
and Financial Market Outlook issued today by RBC Economics.
Although there were concerns that Canada's strong economic
performance had run its course after limited domestic growth
in the third quarter of 2012, export strength is likely to
fuel an increase in real GDP growth through next year. Real
GDP growth is set to increase to 2.4 per cent in 2013.
"We expect that factors weighing on growth in late 2012
and early 2013 will reverse course, which, alongside accommodative
financial conditions and low household borrowing rates, will
set the stage for better economic growth," said Craig
Wright senior vice-president and chief economist, RBC. "And,
as the cloak of uncertainty is removed from the global economy,
demand for Canadian exports will rise, as will investment
and hiring."
External risks, slowing domestic investment and a drop in
exports depressed Canada's economic growth in the third quarter
to a 0.6 per cent annualized rate, which influenced the Bank
of Canada in maintaining its stimulative policy rate of 1.0
per cent.
However, RBC says this slowing largely reflected temporary
factors. With growth expected to rebound and Canada edging
closer to full employment, it is unlikely that interest rates
will stay where they are. As the economy continues to show
signs of strength, the Bank of Canada is expected to implement
a plan of gradual rate increases over the second half of next
year.
RBC anticipates that the trade sector will boost growth in
both 2013 and 2014. As the so-called "fiscal cliff"
cloud lifts, stronger U.S. demand is expected to emerge. Elevated
demand for commodities, especially as China shifts into higher
gear, bodes well for a continued rise in energy and metal
exports.
Import growth is also expected to accelerate, though the
pace of increase is likely to be slower than exports given
the very rapid increases recorded in 2010 and 2011. Still,
RBC predicts overall import growth will rise over the next
two years.
"Net trade is forecast to make the most significant
contributions to real GDP growth since 2001," added Wright.
RBC's Outlook notes that while businesses are facing generally
supportive conditions, the uncertain global environment and
some weakening in commodity prices hampered spending on capital
goods in the first three quarters of 2012. RBC anticipates
corporations will take advantage of their enviable balance
sheet positions and resume spending as the uncertainty gripping
the world economy ebbs.
Low interest rates, access to loans, and a robust housing
market, have recently driven the debt-to-income ratio in Canada
to an all-time high (163 per cent), says RBC.
The continued tightening of mortgage rules and further cooling
in housing market activity are likely to contribute to a steady
moderation in debt accumulation. In fact, RBC affirms that
this trend is already underway with household credit growth
in September and October running at the slowest rate since
2002.
"The slower pace of debt accumulation is a step in the
right direction, although it has been tempered by the fact
that the pace of personal income growth has been lacklustre
to date," said Wright. "Tightening labour market
conditions and stronger wage increases may act to remedy this
situation soon, paving the way for an eventual leveling off
in the debt-to-income ratio."
RBC's near-term outlook calls for the housing market to weaken,
albeit at a modest pace. This reflects affordability strain
relative to historical averages, as well elevated debt-to-income
ratios and the lack of certainty with respect to the future
of the global economy. Some offset to this weakness will be
provided by interest rates remaining historically low in the
near-term.
In 2012, the Canadian dollar traded around parity against
the U.S. dollar and RBC remains bullish on the loonie with
strong underlying factors; commodity prices will remain historically
high; interest rates in Canada will rise quicker than in the
U.S.; and, foreign investors will continue to put their money
into Canadian assets. As a result, the Canadian dollar is
likely to remain on the strong side of parity though the forecast
horizon.
At a regional level, there have been a number of transitory
factors hampering economic growth across several provinces
in recent months, though most of these factors should reverse
in 2013, says RBC.
The most visible movement will be a sharp swing in Newfoundland
and Labrador's outlook from bottom in the 2012 rankings to
top spot in 2013. Alberta and Saskatchewan will also rank
at the top-end of provincial economic growth, with Manitoba
following closely behind. British Columbia and Ontario are
positioned to grow at rates just below the national average,
while the remaining provinces are expected to grow below that
average.
A complete copy of the RBC
Economic and Financial Market Outlook is available as
of 8 a.m. ET. A separate publication, RBC
Economics Provincial Outlook, assesses the provinces according
to economic growth, employment growth, unemployment rates,
retail sales, housing starts and consumer price indices.
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For more information, please contact:
Craig Wright, RBC Economics Research, 416 974-7457
Paul Ferley, RBC Economics Research, 416-974-7231
Elyse Lalonde, RBC Corporate Communications, 416 842-5635
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