Canadian Economic Growth to Strengthen Modestly in 2013 as Global Uncertainty
Eases: RBC Economics
-- Real GDP growth to increase to 2.4 per cent in 2013
-- Interest rates set to rise modestly in second half of next year
-- Significant downside risk expected in near-term
-- Global economy to strengthen moderately in 2013
TORONTO, Dec. 13, 2012 /CNW/ - As downside risks to the global economy ease,
the Canadian economy is headed for a period of gradual improvement in 2013,
according to the latest Economic and Financial Market Outlook issued today by
RBC Economics. Although there were concerns that Canada's strong economic
performance had run its course after limited domestic growth in the third
quarter of 2012, export strength is likely to fuel an increase in real GDP
growth through next year. Real GDP growth is set to increase to 2.4 per cent
"We expect that factors weighing on growth in late 2012 and early 2013 will
reverse course, which, alongside accommodative financial conditions and low
household borrowing rates, will set the stage for better economic growth,"
said Craig Wright senior vice-president and chief economist, RBC. "And, as the
cloak of uncertainty is removed from the global economy, demand for Canadian
exports will rise, as will investment and hiring."
External risks, slowing domestic investment and a drop in exports depressed
Canada's economic growth in the third quarter to a 0.6 per cent annualized
rate, which influenced the Bank of Canada in maintaining its stimulative
policy rate of 1.0 per cent.
However, RBC says this slowing largely reflected temporary factors. With
growth expected to rebound and Canada edging closer to full employment, it is
unlikely that interest rates will stay where they are. As the economy
continues to show signs of strength, the Bank of Canada is expected to
implement a plan of gradual rate increases over the second half of next year.
RBC anticipates that the trade sector will boost growth in both 2013 and 2014.
As the so-called "fiscal cliff" cloud lifts, stronger U.S. demand is expected
to emerge. Elevated demand for commodities, especially as China shifts into
higher gear, bodes well for a continued rise in energy and metal exports.
Import growth is also expected to accelerate, though the pace of increase is
likely to be slower than exports given the very rapid increases recorded in
2010 and 2011. Still, RBC predicts overall import growth will rise over the
next two years.
"Net trade is forecast to make the most significant contributions to real GDP
growth since 2001," added Wright.
RBC's Outlook notes that while businesses are facing generally supportive
conditions, the uncertain global environment and some weakening in commodity
prices hampered spending on capital goods in the first three quarters of 2012.
RBC anticipates corporations will take advantage of their enviable balance
sheet positions and resume spending as the uncertainty gripping the world
Low interest rates, access to loans, and a robust housing market, have
recently driven the debt-to-income ratio in Canada to an all-time high (163
per cent), says RBC.
The continued tightening of mortgage rules and further cooling in housing
market activity are likely to contribute to a steady moderation in debt
accumulation. In fact, RBC affirms that this trend is already underway with
household credit growth in September and October running at the slowest rate
"The slower pace of debt accumulation is a step in the right direction,
although it has been tempered by the fact that the pace of personal income
growth has been lacklustre to date," said Wright. "Tightening labour market
conditions and stronger wage increases may act to remedy this situation soon,
paving the way for an eventual leveling off in the debt-to-income ratio."
RBC's near-term outlook calls for the housing market to weaken, albeit at a
modest pace. This reflects affordability strain relative to historical
averages, as well elevated debt-to-income ratios and the lack of certainty
with respect to the future of the global economy. Some offset to this weakness
will be provided by interest rates remaining historically low in the near-term.
In 2012, the Canadian dollar traded around parity against the U.S. dollar and
RBC remains bullish on the loonie with strong underlying factors; commodity
prices will remain historically high; interest rates in Canada will rise
quicker than in the U.S.; and, foreign investors will continue to put their
money into Canadian assets. As a result, the Canadian dollar is likely to
remain on the strong side of parity though the forecast horizon.
At a regional level, there have been a number of transitory factors hampering
economic growth across several provinces in recent months, though most of
these factors should reverse in 2013, says RBC.
The most visible movement will be a sharp swing in Newfoundland and Labrador's
outlook from bottom in the 2012 rankings to top spot in 2013. Alberta and
Saskatchewan will also rank at the top-end of provincial economic growth, with
Manitoba following closely behind. British Columbia and Ontario are positioned
to grow at rates just below 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 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 price indices.
Craig Wright, RBC Economics Research, 416 974-7457 Paul Ferley, RBC Economics
Research, 416 974-7231 Elyse Lalonde, RBC Corporate Communications, 416
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-0- Dec/13/2012 10:00 GMT
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