TORONTO, Dec. 12, 2017 /CNW/ - With the global economy on
track to post the strongest growth since 2014, Canada is poised to be the G7's growth leader
in 2017, according to the latest RBC Economic Outlook. Buoyed by
consumer spending and housing activity delivering strong gains
early in the year, RBC Economics expects real gross domestic
product (GDP) to grow an impressive 2.9 per cent in 2017. The
forecast calls for slower but still above-potential growth of 1.9
per cent in 2018, with growth moderating to 1.6 per cent in 2019,
in line with potential.
"This was a highly unusual year for the global economy with
heightened political uncertainty accompanied by strong financial
market performance and accelerating economic growth," said
Craig Wright, Senior Vice-President
and Chief Economist at RBC. "Canada's robust growth in 2017 is likely to
moderate somewhat in 2018 as key economic drivers shift, but we
still anticipate the economy will continue to outperform its
potential."
While the Canadian consumer and an active housing market powered
growth in 2017, the dominant forces driving the economy are likely
to change in 2018. Government spending on infrastructure and a
moderate increase in business investment, which began to recover in
2017, are forecast to support economic growth next year. Canadian
exports are expected to strengthen mildly in 2018, although the
outcome of the NAFTA negotiations has the potential to stymie both
exports and investment next year.
The housing market finally entered the early stages of a cooling
phase in mid-2017 after the impact of changes to regulations and
rising interest rates took root. Housing resales and ancillary
purchases are forecast to slip in 2018. Meanwhile the Canadian
economy added jobs at a blockbuster pace generating 344,000 jobs in
the first 11 months of the year, rivaling the gain recorded over
the same period in 2007, before the Great Recession.
The Bank of Canada raised
interest rates for the first time in nearly seven years with two
increases made over the summer and subsequently assumed a cautious
tone regarding further hikes. In the near term, we expect the
overnight rate to remain at 1.0 per cent. However, with the economy
forecast to stay on its current path, we expect additional rate
increases to ensue in the second quarter of 2018 and forecast the
overnight rate will end the year at 1.75 per cent.
The Canadian dollar up against competing
pressures
Canada's dollar
finds itself trapped between expectations of continued policy
normalization from the Bank of Canada and concerns about NAFTA and
competitiveness stemming from US tax reforms. While we expect
Canada's dollar will weaken
modestly early in the year, anticipated rate hikes will likely
cause the dollar to modestly rebound. On balance, RBC forecasts
that Canada's currency will trade
between 75 U.S. cents and 80 U.S. cents in 2018.
All provincial economies expected to grow in 2018
For
the first time since 2011, RBC forecasts all provincial economies
to grow in 2018, albeit at a slower pace relative to 2017 for most
provinces. In many cases, including British Columbia, Ontario, Manitoba and Quebec, economic slack has diminished
considerably following long periods of expansion, making it harder
to repeat 2017's rapid growth rates.
Bucking this trend, Saskatchewan and Newfoundland and Labrador are the two provinces forecasted to
grow faster in 2018 that the previous year. Saskatchewan's economy should benefit from a
rebound in its agricultural sector, while in Newfoundland and Labrador we expect a rise in oil production
will more than offset a drop in capital spending and weakness in
other sectors of the economy.
Outside of Canada
Global
The pickup in the global economy reflects
activity in a number of countries accelerating backed by favourable
conditions and improving labour markets. The euro-area is
experiencing strong momentum, although the Brexit negotiations are
likely to see the pace slow somewhat. The UK economy is likely to
bear the brunt of Brexit related uncertainty, but the odds of a
severe downturn are low in our opinion. RBC forecasts global growth
of 3.6 per cent in 2017 and 3.7 per cent in 2018.
U.S. economy on warp speed
The U.S. economy took off
in the middle of the year, and is expected to ease only slightly in
the fourth quarter. A return of business investment and solid
consumer spending contributed to the rapid growth and are expected
to continue in the coming year. RBC projects the U.S. economy to
grow 2.3 per cent in 2017 and 2.5 per cent in 2018.
We expect the U.S. Federal Reserve to continue to gradually
raise rates in 2018 after a final hike in December 2017 even when Jerome Powell takes over as Chair in February.
We forecast that the Fed will raise the Funds target each quarter
in 2018 to end the year at 2.5 per cent.
A complete copy of the RBC Economic and Financial Market Outlook
is now available. A separate RBC Economics Provincial Outlook
assesses the provinces according to economic and employment growth,
unemployment rates, retail sales, housing starts and consumer price
indices.
A summary of each province's economic outlook can be found in
this fact sheet.
About RBC
Royal Bank of Canada is a global financial institution with
a purpose-driven, principles-led approach to delivering leading
performance. Our success comes from the 80,000 employees who bring
our vision, values and strategy to life so we can help our clients
thrive and communities prosper. As Canada's biggest bank, and one of the largest
in the world based on market capitalization, we have a diversified
business model with a focus on innovation and providing exceptional
experiences to our 16 million clients in Canada, the U.S. and 35 other countries. For
more information, please visit rbc.com.
We are proud to support a broad range of community initiatives
through donations, community investments and employee volunteer
activities. See how at rbc.com/community-sustainability/.
SOURCE RBC