Source: The Canadian Press

Canada’s economic recovery remains robust, despite some slight setbacks from the European debt crisis, which has taken a toll on consumer confidence and exports of Canadian goods.

RBC Economics said Thursday it expects Canada’s economic rebound will be supported by strong domestic demand and increased job creation will continue, as the global recovery remains on track despite woes in the eurozone.

The bank’s latest economic outlook calls for real GDP growth of 3.6% this year, after Canada’s first-quarter growth surged to 6.1%, the fastest pace in over a decade.

“Canada’s economy continued to surge ahead as domestic demand was backed by increases in consumer, housing and government spending,” said Craig Wright, the bank’s chief economist.

“Looking ahead, positive signs in the job market indicate that the recovery will continue in the near term, as private investment increases following a sharp decline during the recession and core inflation remains on target.”

The RBC report forecasts that Newfoundland and Labrador will lead the provinces with 4.1% growth, followed by Saskatchewan at 3.8%, and Ontario and B.C. at 3.5% each.

Growth in Alberta will rise 3.1% this year but strengthen to 4.2% in 2011, the second highest rate of growth behind Saskatchewan at 4.4%.

“Against the backdrop of a steady hum of stronger than expected data reports, the need for emergency-low interest rates was greatly diminished,” the report said.

“Nevertheless, uncertainty about the fate of European sovereign debt saw investors shift into safe-haven assets resulting in volatility in financial markets, a sharp cut in equity and commodity prices, and gyrations in currency markets,” it added.

Bank of Canada governor Mark Carney said Thursday that while the European debt crisis has only had a “modest” impact on Canada’s financial condition and on commodity prices, which factor strongly in the loonie’s value.

However, the RBC report projects the loonie will rebound and sit closer parity with the U.S. dollar as fears over European crisis ease throughout the summer and fall.

Meanwhile, over half of Canadians surveyed in a new Harris-Decima/ Investors Group poll expressed confidence in the economy over the next five years, a shift from the February report in how people perceived their finances compared to a year ago.

Harris-Decima senior vice-president Doug Anderson said while consumer confidence remains relatively high, it appears to have stalled.

“Canadians are clearly optimistic about the long term but recent events such as the downturn in the stock market, the effect of the rising dollar on our manufacturing exports and the banking crisis overseas may have taken a toll on Canadians optimism towards their personal wealth,” Anderson said.

Canadian consumer confidence fell to 85.9 from 89 in February, according to the latest Harris-Decima-Investors Group measure of consumer confidence conducted in May and released Thursday.

In the most recent survey, 15% said they were better off, down from 17% in February, while 23% indicated they were worse off, up from 19% of respondents in February.

About 25% of Canadians surveyed said they see good times ahead for the economy in the next year, down slightly from the 30% who said so in the last survey.

The RBC report said the economy will continue to show gradual improvement as businesses rebuild inventories following a sharp reduction during the recession.

RBC revised its unemployment rate outlook to 8% for 2010 and to 7.3% in 2011, down from its previous call for 8.4% and 7.7% respectively.

The bank also revised its forecast for GDP growth in 2011 to 3.5%, down from its previous call of 3.9%– growth.

“Stronger-than-expected economic data and higher inflation have reduced the need for emergency low interest rates, although uncertainty arising from the European debt crisis adds an element of caution to further rate increases,” added Wright.

New data from Statistics Canada released Thursday indicated the country’s trade balance returned to surplus in April — following revised data that put March into deficit _ despite a 23.4% plunge in exports to the European Union, Statistics Canada reported Thursday.

The fresh numbers suggest Canada’s export sector is being hit hard by Europe’s troubles, but that Canadian recovery may not be put at serious risk from Europe’s unfolding debt crisis.

However, a report by the Conference Board of Canada released Thursday called for Canada to do more to be competitive in the international marketplace, as the loonie continues to rise.

Canada’s trade is starting to register modest growth after total exports fell by 14% in 2009.

But the report said that the recent upward trend in trade numbers in recent months does not necessarily indicate a successful Canadian trade performance.

Glen Hodgson, the Conference Board’s chief economist, called the trend lines for Canadian trade “uncomfortable” for a country that considers itself a major trading nation.

Canada’s trade in real terms has been flat over the past decade,” he said.

“International trade is a tough business at the best of times, and it is about to get tougher. While Canada has some clear areas of strength in global trade, it is also up against exceptionally fierce competitors and can no longer rely on a weak dollar or proximity to the U.S. market. The answer is to re-focus our trade policy efforts.”