CANADA’S ECONOMY HAS TURNED THE CORNER

RBC ECONOSCOPE – Latest edition, January, 2010

Canada’s economy showed signs of picking up pace in the final-quarter 2009.  An increase in employment in the quarter spurred a rise in retail spending and helped the strong rally in the housing market. This increase in household activity  everberated throughout the economy with manufacturing and wholesale activity rising as well.

We expect real GDP growth of 3.4% for the final-quarter 2009 and boosted our forecast for growth in the first half of 2010. We look for Canada’s economy to grow at a trend-like 2.8% this year, accelerating further in 2011 with growth forecasted to average 3.9%.  …AND IS ENTERING 2010 ON FIRM FOOTING.

The sharp rebound in Canada’s housing market and improved labour market conditions indicates that the economy entered 2010 on firm footing. We expect real GDP to increase at an average 3.7% in the first six months of 2010, stronger than our previous forecast of a 3.25% average pace. The gains in employment resulted in the unemployment rate averaging 8.5% in the fourth quarter, a shade lower than the third quarter’s 8.6% average level. Stable labour market conditions and recordlow interest rates saw a staggering 7.4% increase in housing resales in the first two months of the final-quarter of 2009 with prices hitting an all-time high. Robust housing sales led to stronger construction activity with housing starts hitting their fastest pace in a year during the fourth-quarter 2009.

CORE INFLATION RATE TO STAY BELOW 2% TARGET IN 2010

Our stronger growth profile for the first half of 2010 suggests that the bottom in Canada’s core inflation rate will be higher than we previously forecasted, yet we still project it will remain in the lower half of the Bank of Canada’s 1-3% target band. Similarly, recent data indicate that the peak in the unemployment rate will likely be lower than our previous forecast. Even with the upward revision to our 2010 growth forecast, the pace of growth will pale compared to previous recovery periods. This means that Canada’s economy will continue to have an output gap but it is projected to narrow to 2.2 percentage points in 2010 from an estimated 3.5 percentage points at the end of 2009. With excess capacity still needing to be worked off, the unemployment rate is likely to remain above 8% throughout 2010, falling to 7.5% at the end of 2011.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

%d bloggers like this: