Accommodative monetary policy to continue in 2012; Bank of Canada on tap
to gradually raise interest rates next year
Canadian dollar emerges as investors' choice
Business spending to be key driver of future growth
TORONTO, Sept. 10, 2012 /CNW/ - Canada yielded a disappointing economic
performance in the second quarter of 2012 and is expected to grow at a
moderate pace through 2013, according to the latest Economic and Financial Market Outlook issued today by RBC Economics Research. RBC forecasts that
accommodative monetary policy, continued business spending, supportive
labour market conditions and an improving trade balance will lay the
foundation for real GDP growth of 2.1 per cent in 2012.
"The tone of global economic data was somewhat disappointing in the
second quarter and Canada was no exception, with only marginal
increases in exports, a decline in manufacturing sales and weak
consumer spending," said Craig Wright, senior vice-president and chief
economist, RBC. "Canada should, however, continue to take global
headwinds in stride. The economy continues rumbling along, and will
likely pick up as temporary factors ebb and global growth prospects
RBC projects that lingering downside risks will diminish in the months
ahead and clear the way for the Bank of Canada to gradually begin
raising interest rates next year. As such, RBC's outlook on inflation
remains benign, as the economy is still growing at a rate close to its
"As progress is made by European policymakers to deliver a cohesive and
credible plan to address fiscal and financial market imbalances, and a
more moderate fiscal austerity program in the U.S. is implemented, we
will get an improved picture of international and domestic growth
prospects for 2013," Wright noted.
Canada's solid economic fundamentals, elevated commodity prices and
growing expectations of a policy rate increase in 2013 drove the
Canadian dollar above parity this quarter. RBC notes that even some
volatility in commodity prices failed to discourage foreign investment
in Canadian assets, as $90 billion of Canadian portfolio securities
were bought by foreign investors in the 12 months ending June 2012.
According to the RBC Outlook, demand for household credit has slowed
significantly during the quarter in response to domestic policymakers'
continued warnings about the dangers associated with elevated
debt-to-income ratios and recent regulatory changes.
"An uptick in earnings growth will help add a little more welcomed
padding to Canadians' pocketbooks. This, in turn, should also boost
consumer confidence, which has been waning due to global economic
uncertainty and is expected to translate into mild increases in
consumer spending," added Wright. "Looking ahead, credit growth is also
likely to remain moderate, as the bite from mortgage lending rule
changes weighs on home buyer demand."
As stronger signs of improvement in the global economy take shape, RBC
forecasts that Canadian businesses will resume aggressively investing
funds which will be a key source of growth.
Looking through the recent volatility in the labour market, the economy
so far this year generated 20,000 jobs per month up to August 2012,
above the average pace recorded last year, and consistent with the
economy's growth rate.
Canada's exporters will also gain momentum, as the global economy makes
another effort to right its sails. On the other hand, after increasing
by 21 per cent over the past two years, import demand is likely to
slow. On balance, the Canadian trade sector - which has only supported
growth in one of the past 10 years - is positioned to boost growth by
one-half percentage point this year and next.
At a regional level, western Canada is again expected to dominate the
growth rankings both in 2012 and 2013. Alberta is forecast to take the
lead for the second consecutive year, with Saskatchewan and Manitoba
following closely behind. British Columbia and Ontario are positioned
to grow at rates just above 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 7 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