Canada's economy grows at fastest pace in a decade: RBC Economics

Canadian and U.S. forecasts revised higher for 2010 although European debt crisis presents potential risks to the global recovery

TORONTO, June 10 /CNW/ - Canada's economy is set for rapid growth in 2010 with real GDP projected to grow by 3.6 per cent reflecting strong domestic demand and increased job creation, according to the latest Economic Outlook report from RBC Economics. Canada's real GDP grew at 6.1 per cent in the first quarter, the fastest pace in over a decade.

"Canada's economy continued to surge ahead as domestic demand was backed by increases in consumer, housing and government spending," said Craig Wright, senior vice-president and chief economist, RBC. "Looking ahead, positive signs in the job market indicate that the recovery will continue in the near term, as private investment increases following a sharp decline during the recession and core inflation remains on target."

The economy should continue to show gradual improvement as businesses rebuild inventories following a sharp reduction during the recession. Unemployment rates are expected to average 8.0 per cent in 2010 (down from 8.4 per cent in the previous Outlook) before falling to 7.3 per cent in 2011 (down from 7.7 in the previous Outlook).

GDP is expected to rise 3.5 per cent in 2011 (down from 3.9 per cent in the previous Outlook). RBC expects core inflation rates to remain just below two per cent, as the Bank of Canada slowly reduces the amount of policy stimulus and raises interest rates.

"Stronger-than-expected economic data and higher inflation have reduced the need for emergency low interest rates, although uncertainty arising from the European debt crisis adds an element of caution to further rate increases," added Wright.

The report indicates that the global economic recovery remains on track despite recent volatility associated with European debt. World growth forecasts have been revised higher in 2010, as the European bailout package alleviated some concerns about the region, although investors remain cautious. Eurozone GDP growth is forecasted to be 0.8 per cent in 2010 and 1.7 per cent in 2011.

RBC expects U.S. GDP to increase by 3.1 per cent in 2010 and 3.4 per cent in 2011. The report notes that a surge in consumer spending and continued business investment in the U.S. fuelled a three per cent increase in the first quarter, at an annualized rate.

According to the report, recent fluctuations in the value of the Canadian dollar have been impacted by shifting views on the European debt crisis. As these concerns ease throughout the summer and fall, RBC projects that the loonie will be close to parity with the greenback. Beyond this, the Canadian dollar is projected to depreciate gradually through 2011.

Among Canadian provinces, economic growth in 2010 will be boosted by gains in Newfoundland and Labrador (4.1 per cent), Saskatchewan (3.8 per cent), B.C. (3.5 per cent) and Ontario (3.5 per cent). Growth in Alberta will rise 3.1 per cent this year but strengthen to 4.2 per cent in 2011, the second highest rate of growth behind Saskatchewan (at 4.4 per cent).

A complete copy of the forecast is available as of 8 a.m. EDT, at www.rbc.com/economics/market/pdf/fcst.pdf. A separate publication, RBC Economics Provincial Outlook, assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales and housing starts.

For further information: Craig Wright, RBC Economics Research, [phone]; Paul Ferley, RBC Economics Research, [phone]; Matt Gierasimczuk, RBC Media Relations, [phone]