RBC predicts tepid growth for Canada in 2017

“Despite falling energy investment and the Alberta wildfires weighing on the economy, strong consumer spending and housing market activity supported growth in 2016,” says Craig Wright, senior vice president and chief economist with RBC, in a statement. “In 2017, a bounce-back in energy investment and anticipated fiscal stimulus are expected to provide a further boost.”

Consumer spending rose by 2.2% in 2016 and many Canadians will have more money to spend in 2017 thanks to job gains and the introduction of the federal Canada Child Benefit in July. Although Canadians’ debt levels remain high, the debt to net worth ratio has eased over the past three consecutive quarters.

RBC anticipates that business investment will “inch higher” as a result of the expected recovery in oil prices, with additional investment coming from energy companies, service-sector companies and exporters.

The increase in business investment in 2017 will offset a cooling housing market in which sales are expected to decline following regulatory changes at both federal and provincial levels of government, the report states.

The recovery in global energy markets in 2017 will also lead to more uniform growth in most provinces. Barring any unexpected adverse events, modest to moderate growth is predicted for all provincial economies except for Newfoundland and Labrador, in which a drop in capital investment and ongoing fiscal austerity are expected to cause further contraction.

The Canadian dollar will see itself in a tug of war between two contrasting forces in 2017. Although rising oil prices will have a positive effect on the loonie, tighter monetary policy in the U.S. is expected to have the opposite effect. Overall, RBC is expecting mild depreciation of the loonie in 2017 to US72.5¢ from just less than US80¢ in 2016.

However, the currency will likely recover in 2018 as oil prices continue to improve and the Bank of Canada increases the policy rate, RBC predicts, adding that Canada’s key interest rate will remain at 0.5% in 2017.

Globally, economic momentum is expected to continue even in the wake of significant policy shifts in the U.S. and the U.K. thanks to historically low interest rates, commodities price increases and anticipated fiscal stimulus policies. Global economic growth will grow by 3.4% in 2017 and 3.6% in 2018, the report predicts.

The fiscal stimulus anticipated in the U.S. — specifically as result of its new federal government —is expected to further boost economic prospects in 2017, with RBC predicting GDP growth of 2.3% for the upcoming year. The U.S. will also benefit from employment gains and wage increases will strengthen consumption and support a pickup in the housing market.

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