Canada’s economic growth expected to continue in 2010
TORONTO, Sept. 10 /CNW/ – After rapid gains in the early part of the year, Canada’s economy slowed in the second quarter and is expected to rebound only modestly over the second half of the year, according to the latest Economic Outlook report from RBC Economics.
RBC slightly pared back its 2010 forecast, expecting GDP growth of 3.3 per cent which is down from 3.6 per cent 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, RBC.
RBC forecasts that the economy will continue to grow and that the output gap will be completely eliminated by mid-2012. The labour market has recovered 94 per cent of the jobs lost during the recession and the unemployment rate is expected to decline to 7.3 per cent by the end of 2011, from the 8 per cent that prevailed the second quarter of this year.
With government infrastructure spending to be exhausted in the first quarter of 2011, there will be pressure on the private sector to fill the void and sustain economic growth.
GDP is expected to rise 3.2 per cent in 2011, down 0.3 percentage points from projections in last quarter’s Outlook. RBC notes that core inflation has been stable through the economic downturn and expects it to remain anchored around the Bank of Canada’s 2 per cent mid-range target.
“Global financial conditions have not been severely damaged by the European sovereign debt crisis as previously feared,” said Wright. “With central banks pledging to do whatever is necessary to keep the recovery on track, interest rates will remain low, supporting business and consumer spending once confidence is restored.”
RBC adjusted its U.S. GDP forecast to 2.7 per cent in 2010 and 3.0 per cent in 2011, compared to 3.1 per cent and 3.4 per cent the previous quarter, in light of the sharp weakening in real GDP in the second quarter and disappointing reports on the housing and labour markets over recent months.
According to the report, the Canadian dollar has been hurt by concern about the U.S. and global recovery continuing, with an attendant downward impact on commodity prices, and will likely remain under pressure until the risk of another downturn in the global economy dissipates. RBC forecasts that the Canadian dollar will close out 2010 at 93.45 U.S. cents and will again trend upward toward parity by mid-2011.
At the provincial level, RBC expects all provincial economies to grow in 2010; however, 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 per cent from 3.8 per cent) and Alberta (up 3.5 per cent from 3.1 per cent). The largest downward revisions were made to Manitoba (down 0.9 per cent to 2.0 per cent) and Newfoundland & Labrador (from 4.1 per cent to 3.3 per cent). All other adjustments were fairly modest from June and are as follows:
– BC: growth of 3.3 per cent, revised lower from 3.5 per cent
– ON: growth of 3.5 per cent, revised lower from 3.8 per cent
– PQ: growth of 3.0 per cent, revised lower from 3.5 per cent
– NB: growth of 2.3 per cent, revised lower from 2.4 per cent
– NS: growth of 1.8 per cent, revised lower from 2.2 per cent
– PEI: growth of 2.1 per cent, revised lower from 2.6 per cent
British Columbia’s economy soldiers on
Despite global economic uncertainty, British Columbia’s economy is holding its ground with a projected growth rate of 3.3 per cent in 2010, according to a new report released today by RBC Economics.
RBC revised its forecast slightly lower by 0.2 per cent from the previous Outlook, but notes that that the forecasted growth is a welcome about-face from the recession and the estimated decline of 2.4 per cent suffered last year.
“B.C.’s economy continues to demonstrate signs of vigour confirming that last year’s recession is indeed a thing of the past,” said Craig Wright, senior vice-president and chief economist, RBC. “Although some of the jump coming from sectors experiencing a revival this year is likely to come under pressure later this year, fairly solid forward momentum will be maintained overall.”
B.C.’s economy 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. RBC does caution, however, that renewed weakness in U.S. residential construction is likely to create further headwind for the B.C. forest products sector and provincial exports in the near term.
According to the RBC Economics Provincial Outlook, B.C.’s economy continues to benefit from government stimulus with sharp increases in capital spending fueling non-residential construction. The housing market, however, has yet to find middle ground. After considerable swings since the end of 2007, the market is moving downward, likely reflecting the unwinding of earlier juiced-up demand from buyers advancing purchases to lock in exceptionally low interest rates and to beat the introduction of new mortgage rules in April and the HST in July.
“The wildcard for B.C.’s economy is the housing market,” added Wright. “We expect housing activity to stabilize during the second half of this year, although poor affordability levels in markets such as Vancouver pose some downside risk.”
RBC expects B.C.’s positive outlook to continue through 2011, although some modest slowing of growth is likely to occur, and projects real GDP growth of 3.1 per cent next year.
The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales, housing starts and consumer price indexes.
Atlantic Canada set for moderate economic growth in 2010
Notwithstanding some near-term softness in the North American and global economies, Atlantic Canadian provinces are set for growth in 2010, according to the RBC Economics Provincial Outlook released today. Improvements in the commodities and construction sectors will help reverse the modest contraction experienced in the region, overall, last year
“While a new round of economic uncertainty south of the border is casting a shadow on the economic performance, all the Atlantic provinces are poised for growth in 2010,” noted Craig Wright, senior vice-president and chief economist, RBC. “However, the pace is generally expected to be slower than the national average.”
In Nova Scotia, RBC is projecting a 1.8 per cent rate of growth in 2010, which is the slowest rate among the provinces.
“Nova Scotia’s economic growth is being held back by continued declines in natural gas production,” said Wright. “Nonetheless, overall growth will still be achieved thanks to solid gains in retail sales and a rebound in the manufacturing sector amid rising demand for tires and improved pulp and paper markets.”
The RBC report notes that Nova Scotia’s outlook for next year calls for a below-average performance once again, as fiscal restraint, the end of stimulus spending and an expected reduction in major investment projects exert a restraining impact.
“On the bright side, provincial exports should receive a boost from the start of production at Deep Panuke natural gas project next year. We expect Nova Scotia’s economy to grow by 1.5 per cent in 2011,” added Wright
New Brunswick’s economy has received a boost from a broad recovery in the commodity market in 2010, with growth expected to reach 2.3 per cent. Increased energy production and more stable natural gas prices have improved the province’s nominal energy exports by 41 per cent 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 in New Brunswick.
“Looking ahead, the continued recovery in the world economy should boost global demand for provincial exports with consumer spending rising slightly amid employment gains,” explained Wright. “While non-residential investment is expected to slow along with the removal of considerable stimulus spending, we’re forecasting real GDP growth of 2.2 per cent for New Brunswick in 2011.”
After experiencing the country’s steepest real GDP decline in 2009, Newfoundland and Labrador is regaining positive momentum this year as a recovery in mineral extraction and other sectors appear to be gaining a firm foothold. RBC’s expects this will contribute to a fairly solid 3.3 per cent growth rate in 2010 overall.
Non-residential investment in the province is expected to surge by 30 per cent in 2010 and will likely be a steady source of economic strength through the medium term. 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.
“We expect that Newfoundland & Labrador’s momentum will carry into 2011 with growth remaining steady at 3.3 per cent, as a result of strong capital investment and further gains in the mineral extraction sector,” said Wright.
Prince Edward Island, the sole province to avoid a contraction of economic activity in 2009 with an estimated 0.2 per cent gain, will see a modest pick up in growth in 2010. RBC forecasts real GDP to grow by 2.1 per cent in 2010.
The construction sector has been a significant source of strength for the province’s economy so far this year and firm labour market conditions have also bred solid wage growth which in turn is driving strength in retail sales. On the downside, sales of manufactured durable goods are lower year-to-date, and the agri-food sector is also is facing headwinds. Tourism has also been hit hard by the poor labour market conditions in the U.S. and a stronger Canadian dollar.
“Increasing government spending and continued improvement in the global and U.S. economies, which is expected to strengthen demand for agricultural products and boost tourism, bode well for P.E.I. We expect growth to accelerate slightly to 2.4 per cent in 2011,” added Wright.
Saskatchewan leading the country in economic growth
Saskatchewan’s economy is set to lead the country with a robust growth rate of 6.3 per cent in 2010, up significantly from 3.8 per cent in the previous Outlook, led by a huge increase in potash production, according to a new report by RBC Economics.
“Large cutbacks in potash production were a main factor contributing to the contraction in Saskatchewan’s economy in 2009,” said Craig Wright, senior vice-president and chief economist, RBC. “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.”
According to the RBC Economics Provincial Outlook, potash production skyrocketed by 130 per cent 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 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.
Elsewhere in the Saskatchewan economy, recent monthly data suggest that positive growth has returned in the manufacturing and wholesale trade sectors, after both declined sharply last year. The retail trade industry also appears to be bouncing back, albeit more modestly, with retail sales up during the first half of this year, benefitting from gradually rising employment.
“We expect growth in the province to moderate in 2011, as GDP is projected to rise a still robust 4.8 per cent with continued growth in the global economy leading to an increase in energy production and agricultural output,” added Wright.
Energy sector fueling Alberta’s economic recovery
Alberta’s economy is gradually recovering from last year’s sharp contraction with real GDP set to grow 3.5 per cent, reversing most of the estimated 4.5 per cent decline in 2009, according to the latest Provincial Outlook report from RBC Economics.
Strong growth in the province is largely credited to energy-related activity. In particular, Alberta’s oil and gas sector is making a comeback amid improved market conditions and recent changes in the province’s royalty regime which have restored Alberta’s royalty competitiveness.
“Strong sales of crown lands for oil and gas development indicate a renewed desire to develop Alberta’s oil and gas resources – land acreage more than doubled during the first seven months of this year and land value climbed nearly eleven-fold,” said Craig Wright, chief economist, RBC. “This rebound signals greater strength in oil and gas drilling going forward.”
Newly completed or expanded oilsands projects are boosting bitumen output to record levels. Total bitumen production is on pace to grow at the fastest pace since 2006, balancing out continued declines seen in conventional crude oil and natural gas production.
According to the RBC Economics Provincial Outlook, Alberta’s economic recovery is still behind in many sectors. Employment gains to date have been slow, deterring the influx of workers from other provinces which has in turn negatively impacted home resales. Retail sales have weakened in recent months after posting a strong start to the year and while
manufacturing sales are bouncing back, the gains have been modest.
“While we would like to see stronger recovery in a wider spectrum of sectors, overall growth in the province is rebounding solidly and the lagging sectors are expected to soon benefit as renewed strength in energy-related activity feeds through the rest of the economy,” added Wright.
By next year, the recovery will be more broadly based translating to an even faster rate of growth in the provincial economy. RBC forecasts growth of 4.3 per cent in 2011.
Ontario’s recovery on track but the pace will slow
After a burst of activity late last year and early this year, Ontario’s economy will settle down and post an average growth rate of 3.5 per cent in 2010, just slightly stronger than the national average of 3.3 per cent, according to the latest Provincial Economic Outlook report released today by RBC Economics.
“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,” said Craig Wright, chief economist, RBC. “Still, the provincial economy will remain solidly supported by continued capital expenditures, steady employment gains and rising consumer spending.”
The report notes that very strong growth in the fourth quarter of last year and first quarter of this year resulted in an impressive 70 per cent 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 benefitted retailers and homebuilders.
“Investment in machinery and non-residential construction also contributed meaningfully to growth. This is a reflection of both governments stepping up their expenditures on public infrastructure and businesses boosting their capital spending,” added Wright. “This burst of overall economic activity fostered job creation in the province and helped reduce the unemployment rate from its 16-year high reached late last year.”
Ontario’s economic growth in the remaining months of 2010 will benefit from capital expenditures by all levels of government running full-tilt with the deadline for completion of work receiving funding from the federal Action Plan looming in March 2011. Sustained improvement in the labour market also bodes well for continued consumer spending at the shopping malls and car dealerships.
RBC forecasts Ontario’s economy to continue at a healthy pace in 2011 with real GDP growth set to ease to 3.2 per cent.
Quebec’s economy lags but still poised for highest growth in 10 years
Quebec’s economy is projected to grow by 3.0 per cent in 2010 and 3.1 per cent in 2011 – growth rates that have not been reached in 10 years, according to the latest RBC Economics Provincial Outlook report.
“We expect Quebec’s economy to remain resilient in the period ahead with strong contributions in non-residential construction and mining,” said Craig Wright, senior vice-president and chief economist, RBC. “Despite some of its sub-sectors continuing to face challenges, the province’s manufacturing sector, overall, could well add to growth for the first time since 2005.”
After avoiding the worst of the recession, Quebec’s economy, fuelled by highly stimulative monetary and fiscal policy, participated fully in the North American economic activity rally late last year.
“While growth in the latter part of 2009 was largely attributed to government stimulus and strong rebounds in the housing and mining sectors, the first quarter of 2010 saw growth spreading to other sectors, including consumer spending, services, manufacturing and business investment,” added Wright.
In more recent months, the overall pace of growth has slowed even further as key driving forces such as the housing market have calmed considerably since the spring. Declines in automotive sales have weighed down the provincial retail trade industry. Despite being pumped up by massive public infrastructure work programs, the non-residential construction industry is showing signs of slowing mid-year.
Nonetheless, at 3.0 per cent, the projected growth for this year will be quite respectable.
Manitoba’s economy remains on steady growth path though pace revised lower from last quarter
Manitoba’s economy is expected to grow by 2.0 per cent in 2010 thanks in part to rebounding mining and oil and gas sectors, according to a new report released today by RBC Economics.
“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,” said Craig Wright, senior vice-president and chief economist, RBC. “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.”
According to the RBC Economics Provincial Outlook, Manitoba’s economy is benefiting from a solid rebound in its mining and oil and gas extraction sector, which is expected to rise by 6.0 per cent following a 2.7 per cent drop in 2009. Increasing global demand is contributing to the resumption of zinc and gold production from facilities that were previously shuttered.
With infrastructure projects such as the Keystone pipeline and the Winnipeg International Airport completed or nearing completion, downward pressure will be felt on Manitoba’s construction sector in 2010. However, RBC notes that continued work on the Canadian Museum for Human Rights and an expected increase in residential construction will likely limit the extent of decline to about 2.0 per cent.
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 per cent in 2010, following a 4.4 per cent drop in 2009.
After the province recorded only an easing in the decline of manufacturing sales in the early part of the year, RBC expects greater manufacturing strength to emerge during the last half of 2010 as the U.S. recovery regains some heft.
“Looking ahead to 2011, an expected bounce back in agricultural production and continued global economic recovery spurring further gains in the mining, oil and gas and manufacturing sectors bode well for the province and we expect that Manitoba’s economic growth will accelerate to 3.8 per cent,” added Wright.