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Real GDP to increase 1.8 per cent in 2013
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Exports to strengthen and support economy
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Bank of Canada to maintain 1 per cent policy rate until mid-2014
TORONTO, March 19, 2013 /CNW/ - Cautious business spending and increased
U.S. fiscal restraint will weigh on Canadian growth, according to the
latest Economic and Financial Market Outlook issued today by RBC Economics. RBC trimmed its real GDP growth forecast
to 1.8 per cent through 2013, following softer-than-expected growth in
2012.
"After boasting a relatively strong economic performance over the past
several years, Canada's economy hit a speed bump in late 2012," said
Craig Wright, senior vice-president and chief economist, RBC. "That
said, financial conditions continue to support growth. As confidence
recovers, business spending should accelerate, albeit at a less rapid
pace than we saw in the early days of expansion."
RBC notes that strong company balance sheets will help to abet business
spending going forward. At the same time, high levels of household debt
will limit spending on housing as well as goods and services, although
moderate gains in income and employment will partially offset this, RBC
says.
"With household spending likely to fall slightly, we need a pick-up in
not only business investment but exports as well if we want to see the
economy return to above-potential growth," added Wright.
RBC indicates that pent-up demand in the U.S. for housing and vehicles
will help fuel Canadian exports. At the same time, RBC expects a rise
in U.S. business investment, which should strengthen demand for
Canadian machinery exports. However, greater-than-expected fiscal
restraint emerging in the U.S. with the implementation of the
sequestration expenditure cuts in March will likely temper this
strength.
Looking at the Bank of Canada's policy rate, RBC expects it to remain at
the current level for longer than previously thought. The main driver
of this adjustment is weaker than expected growth in Canada over the
second half of 2012, which resulted in a widening output gap - the
difference between actual and potential output - and lower inflation.
"The urgency to boost interest rates is now less compelling; concerns
that low interest rates were fueling an untenable buildup in consumer
debt are being alleviated because of the slowing pace of household debt
accumulation," stated Wright. "RBC forecasts the overnight rate will
remain at one per cent in 2013, with conditions likely to support a
gradual increase starting in mid-2014."
The downward revision to the national growth forecast contributed to
lower growth expectations for a majority of provinces in 2013, with
Newfoundland and Labrador being a main exception. However, provincial
growth is expected to strengthen across most of the country in 2014.
RBC anticipates that Newfoundland and Labrador will emerge farther ahead
of the pack at the top of the 2013 provincial growth rankings. The
Prairies - Alberta, Saskatchewan and Manitoba - will continue to grow
at the top-end. Nova Scotia is the only other province expected to grow
just above the national average, while the remaining provinces stand
below the national mark.
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.
SOURCE: RBC
