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Canadian economy’s hot streak continues in 2017

Canadian economy’s hot streak continues in 2017

TORONTO, September 8, 2017 - The Canadian economy is firing on all cylinders, once again growing substantially faster than its potential in the second quarter of 2017, according to the latest RBC Economic Outlook. Consumer spending, business investment and government spending are all providing the momentum that should see above-potential growth continue through the rest of this year. RBC Economics expects real gross domestic product (GDP) to grow by 3.1per cent in 2017 and 2.2 per cent in 2018.

“Canada’s economy continues to hit it out of the park,” said Craig Wright, senior vice-president and chief economist at RBC. “For the fourth consecutive quarter, we’ve seen above-potential growth, and despite the cooling of the housing market and uncertainly around NAFTA, we expect the momentum to carry through to the end of the year.”

The Canadian consumer isn’t showing signs of slowing down and is poised to remain the key driver of growth in 2017. While consumer spending will likely lessen somewhat in 2018, business investment continues its significant turnaround. Investment spending is expected to add growth every in quarter this year, and will likely remain an important driver of the economy in 2018.

The continued momentum in the economy saw the Bank of Canada significantly change its assessment of the state of the economy in mid-June, leading it to raise interest rates for the first time in nearly seven years. The central bank’s new upbeat outlook brought another rate increase in September 2017, and we anticipate the bank will reduce policy stimulus further in the quarters ahead. The overnight rate is expected to finish 2018 at 2.0 per cent up from 1.0 per cent today.

The Canadian dollar rebounds
The Canadian dollar benefited from the weaker US dollar, rising about 11 per cent from its early May low. The Bank of Canada’s rate hike solidified the dollar’s gains even in the face of declining oil prices. With additional rate hikes anticipated, RBC now forecasts the Canadian dollar will average close to 80 U.S. cents over the forecast horizon.

Alberta is back in the saddle, while Quebec takes off
While most provincial economies have stepped up their pace relative to last year, the country’s economic momentum is not shared equally across all provinces. A rebound in Alberta’s energy sector has led us to revise our forecast upwards, putting the province ahead of the provincial herd with 4.2 per cent growth now expected in 2017.

A major turnaround in Quebec is expected to see the provincial economy grow 2.8 per cent in 2017 – its strongest rate in 15 years. However, Newfoundland and Labrador’s economic contraction continues to grind onward with the provincial economy expected to shrink 1.0 per cent in 2017, though a slight improvement from our June forecast.

Outside of Canada

Global growth outweighs geopolitical concerns
The global economy continued its strong momentum over the summer, shifting some of the focus away from geopolitics. The pick-up in global trade volumes helped keep the economy on a stronger growth trajectory even as BREXIT and NAFTA negotiations got underway. As a result, RBC’s forecast for global growth of 3.5 per cent in 2017 and 3.6 per cent in 2018.

U.S. optimism in the face of uncertainty
Strong financial market performance and hiring activity are providing a steady backdrop for another year of solid consumer spending. We remain optimistic about the U.S. economy even though the level of political uncertainty remains high. RBC projects the U.S. economy to grow 2.2 per cent in 2017 and 2.4 per cent in 2018.

The U.S. dollar has significantly underperformed other major currencies so far this year. However, we expect it to recover, with the U.S. Federal Reserve likely to hike rates more than markets anticipate as the economy continues to pick up steam.

A complete copy of the RBC Economic and Financial Market Outlook is now available.

A separate RBC Economics Provincial Outlook assesses the provinces according to economic and employment growth, unemployment rates, retail sales, housing starts and consumer price indices.

Here are the provincial highlights:

  • British Columbia: Most economic sectors continue to be in full expansion mode at this stage with the labour market impressing with strong job gains being sustained…Learn more.

  • Alberta: We now project a much stronger rebound in Alberta’s economy from 2.9% to 4.2%, reflecting the greater-than-expected strength in the energy sector…Learn more.

  • Saskatchewan: A modest recovery is taking hold this year in Saskatchewan in large part driven by a sharp improvement in export activity…Learn more.

  • Manitoba: We lowered our growth outlook for Manitoba marginally this year to reflect reduced prospects for the grain and oilseed harvest this year due to drier than usual growing conditions…Learn more.

  • Ontario: A healthy job market, strong consumer confidence and heavy infrastructure spending will continue to propel the provincial economy at a rapid clip…Learn more.

  • Quebec: The vigour of Quebec’s economy has been one of the biggest—and most pleasant—surprises this year in Canada, as the province is forecasted to have its strongest growth rate in 17 years…Learn more.

  • New Brunswick: New Brunswick’s economy is getting a jolt of stronger growth this year, supported by an acceleration of job growth and a sharp decline in the unemployment rate...Learn more.

  • Nova Scotia: Employment is on track to increase at its fastest pace since 2012 which will cause a large drop in the unemployment rate as the labour force declines for demographic reasons...Learn more.

  • Prince Edward Island: For the second year running, Prince Edward Island will be the star performer in Atlantic Canada in 2017 with the economy growing by an expected 2.3%...Learn more.

  • Newfoundland and Labrador: Newfoundland and Labrador’s economic contraction continues to grind onward as the province deals with the end of a long boom in investment activity and the fiscal implications of low oil prices…Learn more.

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Media contact:
Craig Wright, Senior Vice-President and Chief Economist, RBC Economics Research, 416-974-7457
Dawn Desjardins, Deputy Chief Economist, RBC Economics Research,
Paul Ferley, Assistant Chief Economist, RBC Economics Research, 416-974-7231
Andrew Swartz, RBC Communications, 416-974-5506