TORONTO, March 11, 2016 /CNW/ - 2015 marked a difficult year for the
Canadian economy and the challenges are expected to continue in 2016,
as energy companies retrench and business investment drops with oil
prices likely to remain lower than previously expected, according to
the latest RBC Economics Outlook report issued today. Still, Canada's real GDP is projected to grow by
1.7 per cent this year - a stronger showing than 2015's 1.2 per cent
RBC expects another year of solid consumer activity and firmer exports
to underpin growth next year. Further, the federal government is
expected to announce fiscal stimulus measures in the upcoming Budget
that will also provide a lift to the economy. Lower oil prices however
will weigh on business investment for the second year running with RBC
ratcheting down its price assumption in both 2016 and 2017.
"While another year of retrenchment by energy companies will dampen
2016's rise, manufacturing sales jumped in November and December and
exports are showing signs of strength," said Craig Wright, senior
vice-president and chief economist, RBC. "The shift in the drivers of
growth that began in 2015 from commodities based companies to other
sectors is an essential part of the economy's ongoing transition,"
The continuation of the transition in the drivers of growth will likely
result in real GDP expanding at a slightly faster pace in 2016 relative
to 2015. Against this backdrop, the Bank of Canada will keep the
overnight rate at 0.5 per cent this year anticipating that as the slack
in the economy eventually subsides, the inflation rate will return to 2
per cent on a sustained basis.
Late surge in exports supports transition story
The low Canadian dollar contributed to a jump in export volumes in
December 2015 of $1.2 billion, marking just the sixth time over the
past five years that monthly sales grew to such an extent. The strong
upward momentum continued in January. "In 2016, firm U.S. domestic
demand and a weaker Canadian dollar are expected to further support
exports of autos, consumer goods, machinery, equipment and lumber and
improve manufacturing conditions," said Wright.
Energy companies pullback again and the Canadian dollar is another
casualty of the oil price rout
Companies in Canada's energy patch reduced investment in 2015 by an
estimated 40 per cent as oil and natural gas prices tumbled. The tight
relationship between oil prices and the Canadian dollar persisted in
early 2016 and the currency slumped to a 13-year low. "An expected
recovery in oil prices in the second half of the year will support a
strengthening in the Canadian dollar" said Wright. The RBC Economics
forecast for the Canadian dollar to end 2016 at 75 US cents.
Consumer spending momentum continues
Canada's consumers have been a key growth engine for several years and
the trend is expected to continue in 2016. Home sales continued to be
strong in early 2016 and the robust housing market activity fueled
rising demand for mortgages. "While elevated debt holdings present a
risk, the combination of a healthy labour market and low interest rates
are expected to support Canadian's ability to service debt in the year
ahead," said Wright.
On the provincial front
The outlook for provincial economies remains divided along the oil
producer-consumer line. Low oil prices are expected to cause further
hardship for oil-producing provinces in 2016 and therefore Alberta,
Newfoundland and Labrador and Saskatchewan's forecasts were
significantly reduced. B.C. is expected to remain at the top of the
provincial growth rankings for the second consecutive year with Ontario
following closely behind.
South of the border
In the U.S., domestic demand remained solid, benefitting from still
accommodative monetary policy and low energy costs. However, external
demand was sluggish in 2015 and this trend is likely to persist in
2016. The sharp correction in oil prices will likely see energy
companies cut capital spending, however outside of the oil and gas
sector U.S. businesses are expected to respond to heightened domestic
demand by increasing payrolls and raising investment in equipment and
real estate. Following a choppy pattern of growth in 2015, the U.S.
economy is forecasted to expand by 2.2 per cent this year.
A complete copy of the RBC Economic and Financial Market Outlook is available as of 7 a.m. ET. A separate public RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth,
unemployment rates, retail sales, housing starts and consumer price
Royal Bank of Canada is Canada's largest bank, and one of the largest
banks in the world, based on market capitalization. We are one of North
America's leading diversified financial services companies, and provide
personal and commercial banking, wealth management, insurance, investor
services and capital markets products and services on a global
basis. We have over 80,000 full- and part-time employees who serve more
than 16 million personal, business, public sector and institutional
clients through offices in Canada, the U.S. and 37 other countries. For
more information, please visit rbc.com.
RBC helps communities prosper, supporting a broad range of community
initiatives through donations, sponsorships and employee volunteer
activities. In 2015, we contributed more than $100 million to causes
around the world.
Image with caption: "RBC Economic Outlook - Canadian economy faces challenges & opportunities in 2016 (CNW Group/RBC)". Image available at: http://photos.newswire.ca/images/download/20160311_C9975_PHOTO_EN_44689.jpg
For further information:
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
Catherine Hudon, RBC Communications, 416-974-5506