Confidence will determine whether or not the global economy can keep it
TORONTO, Sept. 12, 2011 /CNW/ - RBC Economics downgraded their forecast
for the Canadian economy in 2011 after a mild contraction in the second
quarter and softer growth in the U.S. and Euro-zone economies.
According to the latest RBC Economic Outlook issued today, Canada's
real GDP is projected to grow by 2.4 per cent this year - a reduction
of 0.8 percentage points from the forecast issued in June.
"Financial market volatility certainly took a toll on business and
consumer confidence this summer. Our expectation that the global
economy will avert another downturn, however, should temper the slide
we've been seeing in the equity markets and in commodity prices," said
Craig Wright, senior vice-president and chief economist, RBC. "We are
cautiously optimistic that Canada's economy will continue to pick up
speed next year, growing at a rate of 2.5 per cent."
Since June, increased market volatility has created uncertainties about
the global economy. South of the border, the U.S. Federal Reserve
recently committed to keeping interest rates low for a sustained period
in order to ward off lacklustre growth. RBC expects that the Bank of
Canada will do the same until mid-2012, when rate increases are likely
to come into effect.
"The Bank of Canada is likely to maintain its key lending rate at one
per cent, given lower expectations about the outlook for U.S., a mild
contraction in second quarter Canadian growth and benign inflation
pressures," said Wright. "Policy will be geared towards supporting
fragile business and consumer confidence in the near-term."
Going forward, Canada's headline inflation rate is forecast to drift
lower, thanks to the recent declines in commodity prices. RBC projects
that core inflation will remain within the Bank's target range, which
will alleviate the pressure on the Bank to resume its tightening
"Canada's labour market has more than fully recovered from the loss
experienced in the downturn," said Wright. "As of August, Canada had
164,000 more people employed than during the pre-recession peak and so
far this year, employment gains have been concentrated in full-time
The business investment cycle is on an upswing in Canada, growing at
double digit rates throughout 2010 and the first half of this year.
More businesses have cash available due to improved profits and better
access to financing. The strong Canadian dollar has also provided
support for increased investment.
At the provincial level, Saskatchewan leads the way in terms of economic
growth, with Alberta and Newfoundland and Labrador following closely
behind. Manitoba is projected to improve its economic standing in 2011,
while Ontario, British Columbia, and Prince Edward Island fall slightly
below the national average. Quebec continues to show mixed results and
is positioned with the remaining Atlantic provinces at the back of the
"In the second half of this year, we expect both the Canadian and the
U.S. economies to rebound," said Wright. "Global growth will buoy
commodity prices and fears of rate cuts will turn into expectations of
rate hikes and the Canadian dollar is likely to further appreciate in
RBC Economics has cut its U.S. growth projection to 1.7 per cent in
2011, representing a full percentage point reduction to growth. To a
large degree, this change is a result of a significant downward
revision to historical U.S. data that indicated both a deeper recession
and a weaker recovery. The downward revision also reflected one-off
factors like poor weather conditions restricting non-residential
construction activity, the Japanese disasters cutting into auto
production and sales, and gasoline price reducing income to spend on
other goods and services. As the weight of these factors dissipates,
RBC expects growth to pick up. For 2012, RBC Economics is projecting
growth of 2.5 per cent in the U.S.
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 Media Relations, (416) 974-8810