Canada to benefit from strengthening U.S. economy in 2014: RBC

TORONTO—RBC Economics says that after another year of mediocre growth, Canada’s economy is expected to perk up in 2014 thanks to strong growth in the United States.

The bank’s latest economic outlook is forecasting real GDP growth in Canada of 1.7 per cent in 2013, 2.6 per cent in 2014 and 2.7 per cent in 2015, supported by a pick-up in exports and strengthening business investment.

RBC chief economist Craig Wright says a slow and subpar recovery in the U.S. “has no doubt played a part in the underperformance of Canadian exports through 2013.”

But Wright says looking ahead to 2014, RBC expects stronger growth south of the border will translate to increased demand for Canadian exports, especially as the expansion fans out and business investment accelerates.

He says this expected uptick in both exports and business investment is a critical component of the outlook for Canada’s economy.

The report adds that extra support to external trade will come from a weakening Canadian dollar over the course of next year.

The softer currency reflects a levelling off in commodity prices alongside a generally firmer tone for the U.S. dollar.

Canada’s labour market has been “resilient” with 148,000 jobs created so far in 2013, the report notes, with the unemployment rate falling to a cycle low of 6.9 per cent.

RBC says the job growth has driven up wages by close to two per cent on average so far this year while inflation has only rising an average 0.9 per cent pace.

The bank says real wage gains will continue to fuel consumer spending.

“Rising incomes and improving household balance sheets will be the key factors supporting consumer spending which we expect to grow by 2.5 per cent in 2014, up from 2.2 per cent this year,” said Wright.

On a provincial level, the RBC report says the country will continue to see the west out-performing the east, with the dividing line shifting slightly east to the Ontario-Quebec border.