Improving Global Stats Spur Canadian Growth, by Royal Bank of Canada
After a period of economic underperformance that ended in late 2012, the Canadian economy is expected to grow at a reasonable pace in the second half of 2013 and through 2014, according to the Royal Bank of Canada’s September 2013 “Economic and Financial Market Outlook.” Fueled by support from low interest rates coupled with strong demand for exports, RBC Economics projected real GDP growth for Canada of 1.8 percent in 2013 and 2.8 percent in 2014.
Exports increased at the fastest pace since late 2011 in the first quarter of 2013 and continued to grow in the second quarter. RBC expects even stronger Canadian export figures as the global economy perks up.
“The improvements in the U.S. housing market, rising motor vehicles sales and increasing U.S. business investment in machinery will augment the rising demand for Canadian exports coming from the Euro-area and the U.K. as the pace of economic growth improves,” said Craig Wright, senior vice president and chief economist at RBC.
RBC explained that so far in 2013, employment data have been extremely volatile. The six-month average, however, provides a more accurate view of Canada’s labor market conditions. As of August 2013, Canada had an average gain of 12,100 jobs per month for the previous six months.
Monetary policy remains supportive for the economy, with the Bank of Canada’s overnight rate at 1.0 percent. RBC’s bottom-line scenario assumes that Canada’s economy will reach full potential in the first half of 2015, when inflation is expected to approach the 2.0 percent target. RBC also anticipates that housing activity will moderate and the recently established slowing trend in mortgage credit growth will continue to support what the Bank of Canada called a “constructive evolution of household balance sheet imbalances.”
RBC stated that against this backdrop, the Bank of Canada will begin to temper the policy stimulus in the second half of 2014 to accommodate the lags between changes in the policy rate and economic activity. To that end, RBC forecast that the overnight rate will remain at 1.0 percent in 2013 with 50 basis points of increases likely by the end of 2014.
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