Canada on the way of recovery, according to RBC Economics

Thanks to record stimulus investments, improved credit markets and a resumption in consumer expenditure, the Canadian economy should start growing again and Canadian real GDP should establish itself at 3,1% in 2010, according to a new report from RBC Economics.

“The economic revival in Canada seems firmly established, because measures of recovery, the historic weakness of the interest rates and the recovery of the credit markets exert their maximum effect this year”, affirmed Craig Wright, first vice-president and economist-in-chief, at RBC. “Thereafter, any additional growth will have to rest on the strength of the real-estate market and on the expenditure in fixed assets of the private sector, because companies will hire and start investments.“

According to the report, the Canadian economy will grow at a more moderate pace following the increase of 5% recorded in the last quarter of 2009. The stability of the automobile sector and the rise in value of basic commodities should continue to sustain a gradual improvement of the labour market. The rate of unemployment should be established, on average, at 8,4% in 2010, before going down again to 7,7% in 2011.

Still according to the report, consumer expenditure should grow from 2,8% in 2011, a rate similar to that of 2010, and the expenditure in fixed assets of the companies should leap by more than 7% next year, causing an expansion of 3,9% of the Canadian GDP in 2011.

Recent indicators of the activity in the housing market lets foresee a robust recovery in this sector. One envisages an increase in housing starts to 184.000 in 2010, that is to say an important improvement compared to 2009 (149 000 housing starts).

“The improvement of employment and the weakness of the mortgage rates should feed demand for residences and, consequently, strength continues in this sector”, added Mr. Wright. “We expect however that real-estate activity will slow down during the second half of the year, when the rates start an increase and when property will become less accessible.“

Because recent data coming from the United States indicate a clear tendency toward improvement, RBC foresees that American GDP will grow by 2,9% in 2010 and by 3,4% in 2011. According to the report, domestic demand in that country is on the rise, just like consumer expenditures and economic activity in the residential construction and export sectors.

Economic growth in 2010 will be favoured, on a provincial scale, by progress in Newfoundland-and-Labrador (4,1%), in Saskatchewan (3,6%), in British-Columbia (3,4%) and in Ontario (3,3%). Growth in Alberta should be established at 2,5% only this  year, but should reach 4,4% in 2011, the highest provincial growth rate after the one of Saskatchewan (4,6%).

The report will be available in its entirety from 8 a.m., EST, at the following address: http://www.rbc.com/economie/marche/pdf/fcstf.pdf

A separate publication, RBC Economics Provincial Outlook, evaluates the Provinces in terms of economic growth, of growth of employment, rate of unemployment, retail sales and housing starts.