Craig Wright, RBC's chief economist, discusses Canada's outlook
TORONTO, Dec. 12, 2013 /CNW/ - After another year of mediocre growth,
Canada's economy is expected to perk up in 2014, supported by a pick-up
in exports and strengthening business investment, according to the
latest Economic and Financial Market Outlook issued today by RBC Economics. RBC is forecasting real GDP growth of
1.7 per cent in 2013, 2.6 per cent in 2014 and 2.7 per cent in 2015.
"The U.S.'s slow and subpar recovery has no doubt played a part in the
underperformance of Canadian exports through 2013," said Craig Wright,
senior vice-president and chief economist, RBC. "Looking ahead to 2014,
we anticipate that stronger growth south of the border will translate
to increased demand for Canadian exports, especially as the expansion
fans out and business investment accelerates. This expected uptick in
both exports and business investment is a critical component of our
outlook for Canada's economy."
The report indicates that strong exports relative to imports in 2014
will result in trade contributing more than it has in a decade to
Canada's annual growth rate. RBC anticipates that this will cause a
rebound in investment activity particularly in the manufacturing and
mining and oil and gas sectors.
Extra support to external trade will come from a weakening Canadian
dollar over the course of next year, says RBC. The softer currency
reflects a leveling off in commodity prices alongside a generally
firmer tone for the U.S. dollar.
RBC also assumes that neither the Bank of Canada nor the Fed is likely
to adjust the overnight policy rate in 2014, meaning short-term
interest rate spreads will hold steady. Longer-term yields on
government bonds, however, are likely to rise in line with the gradual,
upward shift in U.S. treasury yields; RBC indicates that the pace of
increase will be gradual enough to ensure that the economy doesn't
falter and that the Canadian housing market stabilizes.
Canada's labour market has been resilient with 148,000 jobs created so
far in 2013 and the unemployment rate falling to a cycle low of 6.9 per
cent, RBC says. This increase in employment has driven up wages by
close to 2.0 per cent on average so far this year while inflation has
only increased at an average 0.9 per cent pace. As labour markets
tighten further, wage pressures are expected to have a greater upward
impact on inflation through the forecast moving it closer to the Bank
of Canada's 2.0 per cent target rate. RBC notes that real wage gains
will continue to fuel consumer spending going forward.
"Rising incomes and improving household balance sheets will be the key
factors supporting consumer spending which we expect to grow by 2.5 per
cent in 2014, up from 2.2 per cent this year," added Wright.
On the provincial front, RBC says that an improvement in underperforming
provincial economies will be reflected in Canada's real GDP growth
rising in 2014. The country will continue to see the West
out-performing the East with the dividing line shifting slightly east
to the Ontario-Quebec border.
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, Communications, RBC Capital Markets, 416 842-5635