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Sluggish energy sector contributes to Canadian economic slowdown in 2019: RBC Economics

  • Canada's economy is headed for a slower 2019: RBC Economics downgrades 2019 growth forecast to 1.5 per cent
  • Coastal provinces are expected to lead GDP growth: B.C. to grow 2.5 per cent, Newfoundland and Labrador to grow 2.3 per cent
  • Momentum in the global economy is slipping: Investors remain skittish and central bankers continue to be cautious

TORONTO, March 15, 2019 Canada's economic growth will slow in 2019 as global economic momentum fades and oil-sector woes at home weigh on activity, according to the latest RBC Economic Outlook Report.

RBC Economics has downgraded its 2019 Canadian forecast to 1.5 per cent from 1.7 per cent. In addition to weakness in the energy sector, RBC is projecting softer consumer spending as households adjust to higher interest rates.

The severity of the energy-led downturn is expected to be short-lived, however. RBC also does not expect a dramatic pullback in investment such as the one that occurred in the previous period of falling oil prices.

"The impact of the energy-sector weakness on the Canadian economy is more limited when compared to the previous oil downturn in 2015 and 2016," said Craig Wright, Senior-Vice President and Chief Economist, RBC. "Our forecast assumes that oil prices will hold around current levels throughout 2019 and grind higher in 2020."

The Canadian economy will continue to get a boost from a strong labour market, and projected growth of 2.4 per cent in the U.S. should support Canadian exports.

Employment growth to remain strong
Canada's labour market is healthy with the unemployment rate holding at more than a 40-year low. Wage growth to date has been lackluster, but with more companies facing labour shortages and more workers switching jobs, RBC expects faster wage gains in the near future.

Canada's coasts lead the way in 2019
The start of construction on a $40 billion LNG project is providing a significant boost to B.C's economy. RBC forecasts the province will grow 2.5 per cent in 2019, leading all Canadian provinces and showing few signs of a slowdown in spite of home sales dropping nearly 25 per cent in 2018.

Things are also looking up in Newfoundland and Labrador, which is expected to bounce back after a weak showing in 2018. RBC forecasts real GDP growth of 2.3 per cent in 2019 – the second-highest pace in the country.

Momentum in global economy slowing
While global financial markets have settled since December, investors remain skittish and central bankers are sounding more cautious. China's economy is expected to slow in 2019 and its trade dispute with the U.S. remains unsettled. Both the U.K. and European economies are struggling with the lack of progress on Brexit. RBC projects global growth of 3.5 per cent this year and little change in 2020.

Strong labour market conditions continue to lift U.S economy
With continued job growth and rising wages, the U.S economy is set to be a growth leader in 2019, although growth will not quite reach 2018's strong pace. Consumer spending is expected to remain healthy. RBC forecasts the U.S. economy grow at 2.4 per cent pace in 2019 and less than 2 per cent in 2020.

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
Joel Dembe, RBC Communications, 647-518-4981