Monday, November 12, 2007

RBC Saying that Canada's economy on strong growth path

Canada's economy on strong growth path

Canada's economy has shown solid momentum in the first half of this year with real growth averaging a pace slightly above 3.5%, reflecting the impact of the positive terms of trade shock given recent strong gains in export prices.

However, we have revised the second-half growth rate down to 2.8% because of both a weaker U.S. outlook and the ongoing credit tightness.

The lingering impact from these factors, along with the marked appreciation of the Canadian dollar, will moderate growth next year to 2.5%. Continuing favourable terms of trade are expected to limit the extent of the slowing in growth. Inflation rates are high and will remain above the mid-point of the Bank of Canada's target band. Above-target inflation would normally result in the Bank raising interest rates, but the impact of the credit tightness and the strong surge in the Canadian dollar will prevent interest rates from rising until late in 2008.

Economic growth is expected to rise only moderately in 2009 to 2.6%, although the quarterly growth rates are expected to show a slowing trend.

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