U.S. economy expected to slow in 2007
TORONTO, March 30 /CNW/ - Canada is poised for stronger economic
performance through 2007 with growth of 2.5 per cent and three per cent in
2008, according to the latest economic forecast from RBC.
"Canada's economy softened in the latter half of 2006 with the trade
sector as the main culprit; but solid growth is expected to return in 2007,"
said Craig Wright, vice-president and chief economist, RBC. "The tight labour
market, rising incomes and high levels of liquidity in investment portfolios
will continue to support consumer spending and offset ongoing adjustments in
trade and inventories."
RBC notes that while growth slowed for much of 2006, the economy regained
momentum by year end. In December, broad-based gains in manufacturing, trade
and retail spending saw the economy grow at its fastest monthly rate in more
than a year - setting up for stronger activity in early 2007, especially given
the sharp increase in employment numbers and construction projects.
"We expect Canada's trade sector to finally recover, softening its
weakening influence on economic growth over the past few years," added Wright.
"With a strong global outlook and energy prices remaining high, demand for
Canadian exports is likely to pick up, while the pace of import demand slows
alongside the modestly weaker Canadian dollar. Overall, the drag from the
trade sector is expected to trim only a tenth of a percentage point from 2007
real GDP, a marked improvement from the one and a half to two percentage point
impact of the previous two years."
In the U.S., RBC is forecasting 2.4 per cent growth for the U.S. economy
in 2007, compared to 3.3 per cent growth in 2006. U.S. consumers are likely to
pull back a bit in early 2007, but strong employment gains, rising wages and
growing overall net wealth will support stronger gains in the second half of
2007. Looking ahead growth is expected to jump to 2.9 per cent in 2008.
After reaching a high of 91 U.S. cents in May 2006, the Canadian dollar
slipped 6.5 per cent against the U.S. dollar and could weaken to 82.5 U.S.
cents in the middle of this year. In 2008, Canada's strong economic
performance should boost Canada's currency back to the 87 U.S. cent range.
RBC expects the Bank of Canada will hold the policy rate steady in 2007.
Longer-term rates will rise in the second half of the year in line with U.S.
Treasury yields, with rate hikes likely in 2008.
In the U.S., rising core inflation will keep the U.S. Federal Reserve
from significantly easing interest rates this year. Stronger growth in 2008
will see the Fed shift into rate hike mode with a 50 basis-point increase
expected in the second half of the year.
A complete copy of the forecast is available as of 8 a.m. E.D.T., at
For further information:
For further information: Craig Wright, RBC Economics, (416) 974-7457;
Jackie Braden, RBC Media Relations, (416) 974-2124