March 24, 2005

RBC report

Stable growth expected for next two years

TORONTO

After growing by 2.8 per cent last year, the Canadian economy is expected to grow by 2.7 per cent in 2005 and expand by 3.2 per cent in 2006, the Royal Bank says in its latest forecast.

A 30-per-cent rise in the Canadian dollar over the past two years, versus the U.S. dollar, presents “economic challenges,’’ says Craig Wright, the bank’s chief economist.

“However, resilient consumer and business spending will lead growth this year while international trade is expected to become less of a drag on growth as 2005 progresses.”

The RBC Financial report says low inflation and low interest rates —combined with rising net household wealth and solid labour markets — are expected to keep consumer spending on an upward path.

Business spending is expected to increase in 2005, as corporate profitability remains solid, allowing firms in search of higher productivity to ramp up their investments in machinery, equipment and technology.

The stronger Canadian dollar should also prove supportive of business investment since about 70 to 80 per cent of the machinery and equipment purchased by Canadian companies is imported from the United States.

The big bank says Canada’s trade sector took a beating in the second half of 2004 with a soaring Canadian dollar, triggering strong growth of imports while pushing exports sharply lower.

“With the Canadian dollar expected to stabilize in the low 80 cents (U.S.) range, and the pass-through to trade from the Canadian dollar’s appreciation occurring earlier than is typical, we expect the drag from trade on economic growth to diminish as we progress through 2005,” Wright said in a release.

Alberta remains the country’s growth leader with expected growth of 3.7 per cent in gross domestic product for 2005 and 2006, the bank says.

RBC says growth prospects vary widely across the country, with sharp dissimilarities in the regional growth drivers.

For 2005, there is a forecast growth gap of 2.1 per cent from the weakest expected growth rate in Newfoundland and Labrador to the highest in Alberta.

The Canadian Press

Print | Email | Comment