December 14, 2009

Canadian economy will return to positive growth in 2010: RBC

After a challenging and difficult year, the Canadian economy is set for a nationwide recovery in 2010, according to a new report from RBC Economics.

Although the Canadian economy contracted at an average of 2.5 per cent in 2009, RBC says, "the stage is set for a return to positive growth in 2010."

"With the financial crisis behind us and the U.S. economy on the mend, Canada’s economic growth is expected to rise steadily throughout the next year," said Craig Wright, senior vice-president and chief economist at RBC.

"While challenges remain, a peak in stimulus and infrastructure spending across the federal, provincial and municipal governments, along with low interest rates, should result in a sustained recovery."

RBC says the Canadian economy is set to grow in 2010, with real GDP rising by 2.6 per cent, and will continue to expand in 2011, at 3.9 per cent.

The report indicated that the peak of stimulus spending will occur in 2010, with improving credit conditions fuelling growth both in 2010 and 2011.

"The price tag for the stimulus is high with large budget deficits, but it is still lower, relative to GDP, than the peaks reached in the early 1990’s," Wright said.

"Low mortgage rates and a limited supply of homes have led to an impressive rebound in housing resale activity, which should be seen as proof that consumers are feeling more upbeat, even in areas that were hit hard by the recession like Ontario, B.C. and Alberta."

Consumer spending, however, is still being weighed down by the 8.7 per cent unemployment rate, which the report anticipates is likely to edge higher by year's end.

Other report highlights include:

• Inflation is expected to remain below the Bank of Canada's mid-point target of 2 per cent.
• With interest rates low and confidence improving, consumer spending is projected to increase by 2.3 per cent in 2010, before accelerating to a growth rate of 2.7 per cent in 2011.
• The unemployment rate is expected to remain high in 2010 and average 8.7 per cent before falling to 7.8 per cent in 2011.
• RBC expects growth in 2010 of 2.5 per cent and is anticipating the U.S. real GDP will rise to 3.4 per cent in 2011.
• Consumption will rise by 1.9 per cent in 2010 and 2.5 per cent in 2011, following an "unprecedented two-year decline."

-RCD Digital Media

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