Real GDP growth to increase to 2.4 per cent in 2013
Interest rates set to rise modestly in second half of next year
Significant downside risk expected in near-term
Global economy to strengthen moderately in 2013
TORONTO, Dec. 13, 2012 /CNW/ - As downside risks to the global economy
ease, the Canadian economy is headed for a period of gradual
improvement in 2013, according to the latest Economic and Financial Market Outlook issued today by RBC Economics. Although there were concerns that
Canada's strong economic performance had run its course after limited
domestic growth in the third quarter of 2012, export strength is likely
to fuel an increase in real GDP growth through next year. Real GDP
growth is set to increase to 2.4 per cent in 2013.
"We expect that factors weighing on growth in late 2012 and early 2013
will reverse course, which, alongside accommodative financial
conditions and low household borrowing rates, will set the stage for
better economic growth," said Craig Wright senior vice-president and
chief economist, RBC. "And, as the cloak of uncertainty is removed from
the global economy, demand for Canadian exports will rise, as will
investment and hiring."
External risks, slowing domestic investment and a drop in exports
depressed Canada's economic growth in the third quarter to a 0.6 per
cent annualized rate, which influenced the Bank of Canada in
maintaining its stimulative policy rate of 1.0 per cent.
However, RBC says this slowing largely reflected temporary factors. With
growth expected to rebound and Canada edging closer to full employment,
it is unlikely that interest rates will stay where they are. As the
economy continues to show signs of strength, the Bank of Canada is
expected to implement a plan of gradual rate increases over the second
half of next year.
RBC anticipates that the trade sector will boost growth in both 2013 and
2014. As the so-called "fiscal cliff" cloud lifts, stronger U.S. demand
is expected to emerge. Elevated demand for commodities, especially as
China shifts into higher gear, bodes well for a continued rise in
energy and metal exports.
Import growth is also expected to accelerate, though the pace of
increase is likely to be slower than exports given the very rapid
increases recorded in 2010 and 2011. Still, RBC predicts overall import
growth will rise over the next two years.
"Net trade is forecast to make the most significant contributions to
real GDP growth since 2001," added Wright.
RBC's Outlook notes that while businesses are facing generally
supportive conditions, the uncertain global environment and some
weakening in commodity prices hampered spending on capital goods in the
first three quarters of 2012. RBC anticipates corporations will take
advantage of their enviable balance sheet positions and resume spending
as the uncertainty gripping the world economy ebbs.
Low interest rates, access to loans, and a robust housing market, have
recently driven the debt-to-income ratio in Canada to an all-time high
(163 per cent), says RBC.
The continued tightening of mortgage rules and further cooling in
housing market activity are likely to contribute to a steady moderation
in debt accumulation. In fact, RBC affirms that this trend is already
underway with household credit growth in September and October running
at the slowest rate since 2002.
"The slower pace of debt accumulation is a step in the right direction,
although it has been tempered by the fact that the pace of personal
income growth has been lacklustre to date," said Wright. "Tightening
labour market conditions and stronger wage increases may act to remedy
this situation soon, paving the way for an eventual leveling off in the
RBC's near-term outlook calls for the housing market to weaken, albeit
at a modest pace. This reflects affordability strain relative to
historical averages, as well elevated debt-to-income ratios and the
lack of certainty with respect to the future of the global economy.
Some offset to this weakness will be provided by interest rates
remaining historically low in the near-term.
In 2012, the Canadian dollar traded around parity against the U.S.
dollar and RBC remains bullish on the loonie with strong underlying
factors; commodity prices will remain historically high; interest rates
in Canada will rise quicker than in the U.S.; and, foreign investors
will continue to put their money into Canadian assets. As a result, the
Canadian dollar is likely to remain on the strong side of parity though
the forecast horizon.
At a regional level, there have been a number of transitory factors
hampering economic growth across several provinces in recent months,
though most of these factors should reverse in 2013, says RBC.
The most visible movement will be a sharp swing in Newfoundland and
Labrador's outlook from bottom in the 2012 rankings to top spot in
2013. Alberta and Saskatchewan will also rank at the top-end of
provincial economic growth, with Manitoba following closely behind.
British Columbia and Ontario are positioned to grow at rates just below
the national average, while the remaining provinces are expected to
grow below that average.
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
For further information:
Craig Wright, RBC Economics Research, 416 974-7457
Paul Ferley, RBC Economics Research, 416 974-7231
Elyse Lalonde, RBC Corporate Communications, 416 842-5635