In the second quarter of this year our economy contracted for the first time since the recession ended in the middle of 2009.

The question is: Can we keep confident in the wake of turbulent global economies?   RBC's recent economic survey sheds more light on this story.

Canadian Economy Set To Pick Up Despite Volatile Global Financial Markets

Canada's economic outlook is positive despite the impact of softer second quarter growth both at home and in the U.S.  But the adverse effect of Euro-zone financial trouble on our economy is worrysome.

These factors led to a reduction of 0.8 percentage points from the forecast of 2.4 per cent GDP growth issued in June, but Craig Wright, senior vice-president and chief economist, RBC is still optimistic that the economy will continue to grow at a rate of 2.5 per cent.

Why the optimism?

It boils down to five things: 

• low interest rates,
• jobs,
• cash for business,
• a strong loonie; and
• a lid on inflation. 

RBC expects that the Bank of Canada will keep interest rates at a low of one per cent at least until mid-2012, a move that supports fragile business and consumer confidence in the near-term, according to Wright.  Even our inflation rate is forecast to decrease because of recent declines in commodity prices.

Canada's labour market & business investments

More positive news on Canada's labour market indicates a full recovery from losses experienced in the downturn.

"As of August, Canada had 164,000 more people employed than during the pre-recession peak and so far this year, employment gains have been concentrated in full-time jobs."

As for business investments in Canada, they grew at double digit rates throughout 2010 and the first half of this year. Improved profits and better access to financing means that businesses now have better access to cash while a strong loonie has bolstered investment.

Overall, it is expected that both the Canadian and the U.S. economies will rebound. "Global growth will buoy commodity prices and fears of rate cuts will turn into expectations of rate hikes and the Canadian dollar is likely to further appreciate in 2012," said Wright.

Provincial Economic Growth Forecasts for 2012

Western Canada Economic Growth Forecasts
Ontario & Quebec Economic Growth Forecasts
Atlantic Canada Economic Growth Forecasts

Further reading

RBC Economic and Financial Market Outlook. View the full study: http://www.rbc.com/newsroom/pdf/fcst-09-2011.pdf

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