Outlook for Canada’s Economy

Who said the recovery would be easy?Outlook for Canada’s Economy

ECONOMICS I RESEARCH

Robert HogueSenior [email protected]

Transportation Strategy: Planning for 2011 in Uncertain TimesMississauga, September 14, 2010

2ECONOMICS I RESEARCH

After stellar start to year, growth slows down in second quarter

Canada’s recovery hits a bump

-8

-6

-4

-2

0

2

4

6

8

00 01 02 03 04 05 06 07 08 09 10

Annualized % change, quarter-over-quarter

Source : Statistics Canada, RBC Economics Research

Canada's real GDP


Net trade accounts for most of the Q2 growth moderation

Once again, uncertainty is coming from abroad

-4

-3

-2

-1

0

1

2

3

Consumer

spending

Government

spending

Residential

investment

Non-res.

investment

Net trade Inventories

2010 Q1 2010 Q2

Percentage points

Canadian real GDP growth composition

Source: Statistics Canada, RBC Economics Research


Greece’s troubles unsettled markets

European debt crisis shook confidence earlier this year…

-16

-14

-12

-10

-8

-6

-4

-2

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

As % of GDP

Source : Eurostat, RBC Economics Research

Greece's budget deficit


Housing, labour data have disappointed south of the border

…then the U.S. economy hit a soft patch

-8

-6

-4

-2

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10


U.S. real GDP

Source: Bureau of Economic Analysis, RBC Economics Research


Meanwhile, imports are bouncing back quite strongly

Weak external conditions weigh on Canada’s exports

-5

0

5

10

15

20

25

00 01 02 03 04 05 06 07 08 09 10

Canada's Trade Balance


$ Billion


Activity sustained by very stimulative policy

At home, the domestic economy maintains a good pace

-10

-8

-6

-4

-2

0

2

4

6

8

02 03 04 05 06 07 08 09 10



Canada's Final Domestic Demand


While rising, Canadian interest rates will still be very low

Going forward, policy will continue to provide support

0

1

2

3

4

5

6

7

00 01 02 03 04 05 06 07 08 09 10 11

%

Source: Bank of Canada, RBC Economics Research

Forecast

Bank of Canada overnight rate


Expectations well anchored at the 2% Bank of Canada target

Inflation is under control

-2

-1

0

1

2

3

4

5

6

7

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11


% change, year-over-year

Forecast

Canadian inflation

Core

Headline


Infrastructure spending cresting this year

Strong fiscal stimulus

-50

-40

-30

-20

-10

0

10

20

30

40

02 03 04 05 06 07 08 09 10 11


Fixed investment

Sources: Statistics Canada, RBC Economics Research

Government

Business

Forecast


Unemployment rate to trend lower

Job market will improve further…

5

6

7

8

9

10

00 01 02 03 04 05 06 07 08 09 10 11

Unemployment rate in Canada


%

Forecast


Although consumer spending growth will be moderate

…keeping Canadian consumers shopping

-4

-2

0

2

4

6

8

10

02 03 04 05 06 07 08 09 10 11



Real consumer expenditures

Forecast


Multi-speed recovery is under way

Despite recent setbacks, global economy is growing…

-0.6-1

0

1

2

3

4

5

6

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

% change, year-over-year

World GDP growth

Source: International Monetary Fund, RBC Economics Research

Forecast

4.24.3


Supporting growth in Canada’s resource sector

…boosting demand for commodities

RBC Commodity Price Index

0

50

100

150

200

250

300

350

400

99 00 01 02 03 04 05 06 07 08 09 10

J anuary 1994 = 100

Source: RBC Economics Research


Oil prices to rise modestly

Crude oil prices WTI

0

20

40

60

80

100

120

140

99 00 01 02 03 04 05 06 07 08 09 10 11

79$85$

US$/ barrel

Source: Wall Street J ournal, Haver Analytics, RBC Economics Research


Still many challenges ahead but no double-dip in the cards

U.S. economy will pick up pace

-8

-6

-4

-2

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10 11


Forecast

U.S. real GDP

Source: Bureau of Economic Analysis, RBC Economics Research

Annual growth rates

2009 2010f 2011f

-2.6 2.7 3.0


Growth to hover between 3% and 4% this year and next

Canada’s recovery will be sustained

-8

-6

-4

-2

0

2

4

6

8

00 01 02 03 04 05 06 07 08 09 10 11


Forecast


Annual growth rates

2009 2010f 2011f

-2.5 3.3 3.2

Canada's real GDP


Expected to test parity again by the middle of next year

Canadian dollar to gain some altitude

0.98

0.6

0.7

0.8

0.9

1.0

1.1

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11

U.S dollar per Canadian dollar

Forecast

Canadian dollar

Source: Bank of Canada, RBC Economics Research


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The material contained in this report is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authorization of the copyright holder in writing. The statements and statistics contained herein have been prepared by RBC Economics Research based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This publication is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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Economy & Finance

Outlook for Canada’s Economy