Canada's growth to continue: RBC

Canada’s economy may be slowing, but it will not be stalling.

According to the latest Economic Outlook report from RBC, Canada’s economy is on pace to modestly rebound over the second half of the year.

RBC is predicting GDP growth of 3.3%. That’s down from 3.6% projected last quarter.

“While Canada’s second quarter growth put real GDP close to its pre-recession high, concerns in the U.S. and nervousness about the health of the global economy are weighing on the outlook for the second half of the year,” said Craig Wright, senior vice-president and chief economist with RBC.

RBC reports that the labour market has recovered 94% of the jobs lost during the recession, and the unemployment rate is expected to decline to 7.3% by the end of 2011, from the 8% that prevailed in the second quarter of this year.

At the provincial level, RBC expects all provincial economies to grow in 2010. The downshift in economic momentum prompted growth forecasts for most provinces to be revised lower in 2010 with the exception of Saskatchewan (increased to 6.3% from 3.8%) and Alberta (up 3.5% from 3.1%).

The largest downward revisions were made to Manitoba (down 0.9% to 2.0%) and Newfoundland & Labrador (from 4.1% to 3.3%).

Provincial Breakdown

British Columbia

British Columbia’s economy is holding its ground with a projected growth rate of 3.3%.

B.C.’s economy continues to demonstrate signs of vigour, confirming that last year’s recession is indeed a thing of the past. It has significantly benefited from stronger commodities markets with softwood lumber, market pulp, coal, natural gas and copper—all well above year-ago levels. The resource sector’s recovery has been a big boost to the trade performance of the province, with the value of merchandise exports increasing at a double-digit rate so far this year.

B.C.’s positive outlook will continue through 2011, although some modest slowing of growth is likely to occur, and projects real GDP growth of 3.1% next year.

Quebec

Quebec’s economy is projected to grow by 3.0% in 2010 and 3.1% in 2011. These are growth rates that have not been reached in 10 years. Quebec’s economy will remain resilient with strong contributions in non-residential construction and mining.

The first quarter of 2010 saw growth spreading to other sectors, including consumer spending, services, manufacturing and business investment.

Ontario

Ontario’s economy will settle down and post an average growth rate of 3.5% in 2010, just slightly stronger than the national average of 3.3%.

The rapid cooling of Ontario’s housing market since the spring will have a restraining impact on economic growth in the last half of 2010, as will the soft patch into which the U.S. economy recently entered.

Very strong growth in the fourth quarter of last year and the first quarter of this year resulted in an impressive 70% recovery of real GDP, which was lost during the recession. This strong momentum was broadly based but received much of its thrust from a surge in the housing sector, where a spectacular rebound in housing resales ultimately benefited retailers and home builders.

RBC forecasts Ontario’s economy to continue at a healthy pace in 2011, with real GDP growth set to ease to 3.2%.

Manitoba

Manitoba’s economy is expected to grow by 2.0%, thanks—in part—to rebounding mining and oil and gas sectors.

While the rate of growth is slightly lower than most other provinces, there isn’t as much of a need for Manitoba to play catch-up as its economy outperformed most other provinces through the recession. The modest growth this year has been partly impacted by the winding down of key capital spending projects as well as some weakness in the agricultural sector.

Manitoba’s economy is benefiting from a solid rebound in its mining sector and oil and gas extraction sector, which is expected to rise by 6.0% following a 2.7% drop in 2009. Increasing global demand is contributing to the resumption of zinc and gold production from facilities that were previously shuttered.

A significant drop in grain production is hampering the province’s growth this year; however, an expected strengthening in livestock production will soften some of the negative impact, limiting the decline in Manitoba’s overall agricultural sector to 8.0% in 2010, following a 4.4% drop in 2009.

An expected bounce back in agricultural production and continued global economic recovery—spurring further gains in the mining, oil and gas and manufacturing sectors—bodes well for the province, and we expect that Manitoba’s economic growth will accelerate to 3.8%.

Saskatchewan

Saskatchewan’s economy is set to lead the country with a robust growth rate of 6.3% in 2010, up significantly from 3.8%, led by a huge increase in potash production.

The positive outlook this year reflects recent indications of a sharp reversal of the weakness in potash production, in addition to projected gains in the manufacturing, wholesale and retail trade industries.

Potash production skyrocketed by 130% in the first five months of the year, which is expected to make up for weakness in the oil and natural gas production sectors. Growth in the province would be higher had the agricultural sector not been impacted by wet conditions reducing seeding and grain quality; however, this negative effect has been tempered by a rise in global crop prices.

Moderate growth is expected in 2011 as GDP is projected to rise a still-robust 4.8% with continued growth in the global economy leading to an increase in energy production and agricultural output.

Atlantic Canada

Atlantic Canadian provinces are set for growth in 2010 with improvements in the commodities and construction sectors helping reverse the modest contraction experienced in the region. The pace is generally expected to be slower than the national average.

In Nova Scotia, RBC is projecting a 1.8% rate of growth, the slowest rate among the provinces.

Nova Scotia’s economic growth is being held back by continued declines in natural gas production, but there were solid gains in retail sales and a rebound in the manufacturing sector amid rising demand for tires and improved pulp and paper markets.

Nova Scotia’s economy is set to grow by 1.5%.

New Brunswick’s economy has received a boost from a broad recovery in the commodity market with growth expected to reach 2.3%. Increased energy production and more stable natural gas prices have improved the province’s nominal energy exports by 41% year-to-date. A rebound in the manufacturing sector, along with higher prices for the province’s food, energy and forestry products, also contributed to economic growth.

It is predicted that New Brunswick’s real GDP will grow to 2.2%.

Newfoundland & Labrador regained positive momentum as a recovery in mineral extraction, and other sectors appear to be gaining a firm foothold.

Metal mining output is bouncing back strongly, and improved commodity market conditions will also provide a significant boost to the provincial government’s crude oil royalty revenues.

Newfoundland & Labrador’s momentum will carry into 2011, with growth remaining steady at 3.3%.

Prince Edward Island, the sole province to avoid a contraction of economic activity in 2009 with an estimated 0.2% gain, will see a modest pickup in growth in 2010. RBC forecasts real GDP to grow by 2.1% in 2010.

The construction sector has been a significant source of strength for the province’s economy, and firm labour market conditions have also bred solid wage growth, which, in turn, is driving strength in retail sales.

Expected growth is set to accelerate slightly to 2.4%.

Canada’s growth to continue: RBC

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