Real GDP to increase to 1.9 per cent in 2013
TORONTO, June 19, 2013 /CNW/ - Canada's economy started 2013 growing at
a solid clip, as energy production continued to recover and the U.S.
economy proved to be more resilient to a recession than was feared,
according to the latest Economic and Financial Market Outlook issued today by RBC Economics. Following an increase in Canadian GDP
output of 1.7 per cent in 2012, RBC raised its real GDP growth forecast
to 1.9 per cent through 2013 and expects a firmer 2.9 per cent rise in
The first quarter of 2013 saw a marked turnaround in the domestic
economy, with Canada realizing a solid 2.5 per cent annualized gain,
supported by a sharp turnaround in net trade which added 1.4 percentage
points to the quarterly growth rate - the largest contribution since
"The improving trade balance underpins our forecast for Canada's economy
to grow at rates which should help propel the economy to full capacity
in early 2015," said Craig Wright, senior vice-president and chief
economist, RBC. "Stronger demand for autos, houses and industrial
machinery from the U.S. will help sustain the lift in export growth
that Canada experienced so far this year for the remainder of 2013."
Businesses reduced the pace of investment in structures and capital
goods in recent quarters, likely a reflection of the uncertainties
surrounding the effect of U.S. government's fiscal restraint on U.S.
demand for Canadian goods. Easy financial conditions in Canada coupled
with indications that the U.S. will clear the fiscal cuts in good stead
will support a rebound in business spending in the quarters ahead, RBC
"Company balance sheets are healthy - business financing made headway in
early 2013 and will continue to provide Canadian firms with the
capacity to invest at an accelerating rate in 2014," said Wright.
"After rising an expected 3.7 per cent this year, business spending
will strengthen to 7.3 per cent in 2014."
RBC says export recovery and business investment are necessary to keep
the economy on track and to offset a softer housing market. Residential
investment is forecast to decline 2.4 per cent this year and 0.7 per
cent in 2014. This slowing partially reflects overstated strength in
2012 when residential investment jumped 6.1 per cent as home sales
increased - likely to avoid a tightening in mortgage lending and fear
of mortgage rate increases.
Cooling activity in the housing market led to a reduction in the pace of
mortgage debt growth to the slowest level since 2001 in April, easing
concerns that the economy is vulnerable to a significant shock. In
fact, RBC indicates that debt service costs remain historically low and
one-third of households continue to be debt free.
"The firm labour market is another factor mitigating the risk that a
debt-associated downturn is brewing," noted Wright. "With employment at
an all-time high and household income and savings on the rise, we
expect household debt to remain in check, which should limit the
weakness in the housing market and support consumer spending."
An easing in household credit growth coupled with a low level of
inflation set the stage for accommodative monetary policy in early
2013. RBC says that new Bank of Canada Governor, Stephen Poloz, will
likely maintain interest rates at the current level for the remainder
of 2013, and expects the Bank will start to reduce the amount of
stimulus in the second half of 2014.
Globally, RBC expects the world's economy to continue growing at a
modest pace in the first half of 2013 as a result of Europe's ongoing
struggle to get out of recession and the U.S. economy absorbing
government austerity measures. Growth is likely to accelerate later
this year, however, as the benefits from structural changes combined
with very supportive interest rates boost global economic momentum.
After a generally disappointing finish to 2012, the economic performance
across the majority of Canada's provincial economies improved in early
2013. RBC forecasts that natural resource-intensive provinces will
remain at the top-end of the growth rankings in 2013 and that stronger
exports will be the mainstay for many of Canada's provinces.
Newfoundland and Labrador will outpace all other provinces by a long
shot to stand atop the 2013 provincial growth rankings. The Prairies -
Alberta, Saskatchewan and Manitoba - will continue to grow at the
top-end. The remaining provinces are expected to stand slightly below
the national average for growth.
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