Economy to strengthen in second half: RBC

The Canadian economy likely remained in recession during the second quarter of 2009, but fiscal and private spending will help boost the economy into recovery in the second half, and help sustain GDP growth through 2010, according to RBC report.

“Improving global growth prospects, alongside extraordinarily low interest rates and government stimulus, are expected to allow Canada to return to positive growth in 2009, with a moderate recovery in 2010,” says Craig Wright, senior vice-president and chief economist, RBC.

The report forecasts that Canada’s economy will contract by 2.4% this year, due in part to the substantial 5.4% annualized contraction of real GDP in the first quarter.

Across the country, each province is being affected by the recession differently, and RBC forecasts that the provinces will each have a different recovery experience.

The deeper troubles in Ontario’s auto industry has cut into the province’s growth and will slow its recovery in 2010. With continuing weakening in manufacturing, employment and consumer demands, the province is expected to contract 3.4% in 2009 — one of the largest drops in Canada.

With the unemployment rate at the 12 year high of 9.4% and collapse of the auto manufacturing sector, the path for Ontario’s recovery seems more uncertain.

Stimulus spending in the Canada and U.S. will help boost the province’s construction activity and demand for Ontario’s products and services. For 2010 the province’s economic growth is expected to be 2.2%, a little lower than the national average of 2.5%.

In Alberta, cutbacks in spending on construction and business investment have dragged down the economy, which is expected to contract by 2.5% in 2009. The severe economic slump has taken a toll on unemployment, now at a 12 year high of 6.6%.

RBC forecasts that new and increased infrastructure and business spending will help turn Alberta’s economy around in 2010. The report anticipates that real GDP will reach a 2.9% growth rate in 2010. Also, oil prices will average $65 a barrel and help keep the province on the course of recovery.

Saskatchewan is among the three provinces that was least affected by the recession. In 2009, the province’s GDP is expected to grow by 0.7%.

Despite declines in demand for raw materials and weakness in employment sector, the province faces bright economic prospects for 2010. The infrastructure spending supported by the 2009 budget will ramp up non-residential construction activity. Also, an American recovery in the later parts of 2009 is expected to improve demand for key Saskatchewan exports — including potash, grains, uranium and oil — by 2010. That should boost growth to 2.8% in 2010.

Manitoba is one of the few provinces to experience growth in 2009, with an increase of 0.5% expected for the year. Increased spending in the U.S and in infrastructure is expected to further increase growth in 2010 to 2.8%. Stronger grain prices will benefit the agricultural sector.

In contrast, hard times are being felt in most of the Atlantic region. Nova Scotia is the only Atlantic province to post growth in 2009 — its GDP gain of a modest 0.2% is still higher than the 2.4% decline expected nationally.

However, stimulus and capital spending, coupled with stronger commodity prices should send Nova Scotia’s growth rate to 2.5% in 2010.

Prince Edward Island and New Brunswick are expected to see growth of 2% and 2.7%, respectively, in 2010.

For 2009 British Columbia’s real GDP declined by 1.9%. Weakness in the forestry sector spread into other parts of the economy, such as mining and manufacturing. With little hope of a rebound in U.S. housing construction, B.C.’s forestry sector is expected to remain quiet for 2010.

However infrastructure spending coupled with higher tourism activity arising from 2010 Olympics and a recovery in commodity prices will help set the stage for growth next year.

With negative forces intensifying and likely to persist longer than previously expected, RBC lowered its real GDP growth forecast for Quebec to -1.6% — it’s first annualized contraction since 1991.

(06/15/09)