Canadian economy picking up steam: RBC

Improved credit markets, increased domestic spending and a robust stimulus investment lead the charge as Canada’s economic growth picks up pace, says a report by RBC Economics.

“An economic recovery is solidly taking root in Canada with the full impact of stimulus spending, historically low interest rates and improved credit markets all taking effect this year,” says Craig Wright, senior vice-president and chief economist, RBC.

Poised for a GDP growth of 3.1%, the economy is further expected to be fuelled by the emerging housing market, investment by the private sector, and increased payrolls and investment by corporations, he says.

The report projects consumer spending will have expanded next year by 2.8%, keeping pace with business investment estimated to grow by over 7%. This will push Canada’s GDP to 3.9% in 2011.

Although a more moderate growth pace compared to a 5% surge in fourth quarter 2009, the growth is likely to be steady as the auto and housing sectors, and the labour markets continue to recover.

“The housing market should remain strong as improved labour conditions and low mortgage rates fuel demand,” says Wright.

The report indicates that housing starts are expected to grow to 184,000 in 2010, considerably higher from 149,000 in 2009, while projecting unemployment rates to average 8.4% in 2010 before dropping to 7.7% next year.

A recent Statistics Canada release says the New Housing Price Index was up 0.1% in January — recovering from a 0.9% decline last December. That’s the first year-over-year increase since December 2008.

At the provincial level, the RBC Economics survey says Newfoundland and Labrador will lead the country in economic growth with a projected GDP rate of 4.1%; made possible by increased production of crude oil and mineral products, and a surge in capital spending.

Following closely, Saskatchewan’s growth of 3.6% will result from improved capital investment, an expected increase in agricultural output and rising commodity prices. British Columbia will have shaken off its worst performance in two decades in 2009 to grow 3.4%, while Ontario (3.3%) will ride back to positive economic growth on the back of an improving housing sector and greater motor vehicle production.

Alberta, although expecting only a 2.5% GDP hike this year, will see growth leap 4.4% in 2011; becoming the second highest after Saskatchewan’s 4.6%. This economic momentum is expected to come from improvement in natural gas markets, among other economic sectors.

(03/11/10)