BUSINESS

RBC takes more optimistic view of Canadian economy, raises growth forecast

06/19/2013 08:12 EDT | Updated 08/19/2013 05:12 EDT
TORONTO - An anticipated financial recovery south of the border is likely to help economic growth in Canada, economists said Wednesday, although the U.S. is likely to outpace its neighbour for the first time in years.

RBC Economics raised its estimate for Canada's 2013 economic growth to 1.9 per cent, from 1.8 per cent in March, citing an improving picture on trade and the strength of corporate balance sheets.

The bank maintained its projection for 2014 growth at 2.9 per cent.

RBC's (TSX:RY) estimates are higher than the Bank of Canada's most recent outlook for the 2013 and 2014 gross domestic product and also higher than several recent forecasts by private-sector and international economists.

As others have noted, RBC says the United States has been more resilient than anticipated in the early months of this year.

"The improving trade balance underpins our forecast for Canada’s economy to grow at rates which should help propel the economy to full capacity in early 2015," said Craig Wright, the bank's chief economist.

"Stronger demand for autos, houses and industrial machinery from the U.S. will help sustain the lift in export growth that Canada experienced so far this year for the remainder of 2013."

Wright added that company balance sheets are healthy and will allow Canadian firms to invest in growth at an accelerating rate.

"After rising an expected 3.7 per cent this year, business spending will strengthen to 7.3 per cent in 2014," he said.

However, BMO's (TSX:BMO) chief economist Douglas Porter says the U.S. economy will grow at a faster pace than Canada's for the next few years, helped by a comeback in house prices.

"For a number of years, Canada was outpacing the U.S., and now we're in a situation where there's just a lot more pent-up demand in the U.S. than there is in Canada," he said at a Toronto Region Board of Trade event.

"Our consumer has tapped out, there's not a lot of room for domestic spending to grow, and we think that the tables have turned and that's going to be the story for the next number of years."

Canada's central bank lowered its 2013 growth forecast by half a point to 1.5 per cent in April and maintained that stance on May 29 when it announced its key lending rate would remain unchanged.

The Bank of Canada has also estimated 2014 economic growth will be 2.8 per cent followed by 2.7 per cent growth in 2015.