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Canadian economy on firm ground despite trade uncertainty: RBC Economics

  • Canada’s economy will experience uneven growth the quarters ahead: RBC expects GDP to grow 2.1 per cent in 2018
  • Tight labour markets limiting growth in BC, Ontario and Quebec: Some 86 per cent of local economic regions in Ontario boast a jobless rate of 6 per cent or less
  • Global economy losing altitude: RBC forecasts the global economy to post a strong gain of 3.9 per cent in 2018 though fastest increase likely occurred earlier in the year

TORONTO, September 12, 2018 - Canada’s uncertain trade backdrop has not had the dampening effect on the economy you might expect, according to the latest RBC Economic Outlook Report. Consumer spending and business sentiment remains high, and there are signs of a modest firming in wage gains. RBC projects real GDP growth of 2.1 per cent in 2018 and slowing slightly to 2.0 per cent in 2019.

While Canada’s economic performance has been uneven throughout 2018, RBC expects a bounce-back in Q4.

“We expect the shutdown of a major oil sands producer in July to weigh on the quarter’s performance, while we should see a rebound in Q4 as production recovers,” said Craig Wright, Senior Vice-President and Chief Economist, RBC.

Even with trade uncertainty reaching a near boiling-point, Canada’s trade gap with the U.S narrowed in the second quarter, with exports surging as U.S buyers got ahead of import tariffs. With tariffs being levied on both sides of the Canada-U.S border, exports and imports are forecasted to rise at a significantly slower pace in the months ahead.

Canadian dollar to stand firm
The Canadian dollar is down 4.3 per cent against the U.S. dollar compared to August 2017, but is holding steady against other major currencies. Looking ahead with both the Fed and the BOC likely to continue to bump up the policy rate at a measured pace, the upside for Canada’s currency against USD will be limited. Given RBC’s bullish outlook for oil, RBC Economics expects this will provide some support for the Canadian dollar. RBC forecasts that the Canadian dollar will trade in a range around 77 cents for the remainder 2018.

Tight labour markets to limit growth in BC, Ontario and Quebec
In Canada’s three most populous provinces, labour markets haven’t been this tight in years, and not just in the big cities. Some 86 per cent of local economic regions in Ontario boast a jobless rate of 6 per cent or less, according to RBC Economics.

In British Columbia, the unemployment rate is forecast to be just 4.9 per cent and 5.5 per cent in both Ontario and Quebec this year.

Given the tight labour conditions, RBC Economics believes it is contributing to a slow-down of economic growth in several provinces, most especially in BC, where one in every 24 jobs (4.2 per cent) remains unfilled.

Outside of Canada

Global Economy losing altitude, but recession not on the horizon
With trade tensions continuing to face major turbulence, along with overall slower trade activity, the global economy has incurred significant headwinds over the past several months. Despite this turbulence, RBC expects the global economy to post a strong gain in 2018 and to avoid a major downturn in 2019. RBC forecasts the global economy will expand by 3.9 per cent in 2018 and post a similar increase in 2019.

U.S economy reaping benefits of policy stimulus
A robust labour market, healthy consumer spending and rising business investment have all contributed to a scorching-hot U.S economy. RBC forecasts real GDP growth at 2.8 per cent in 2018, before slowly modestly in 2019 to 2.4 per cent.

The labour market remains strong as the unemployment rate stands at 3.9 per cent, the lowest since late 2000. As the overall pool of labour continues to shrink, it is expected that wages will rise as employers compete for increasingly scare labour. However, wage growth to-date has been uncharacteristically slow.

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.

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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, 416-974-6919
Paul Ferley, Assistant Chief Economist, RBC Economics Research, 416-974-7231
Joel Dembe, RBC Communications, 647-518-4981