RBC by Ian Muttoo
According to a report issued Friday by Royal Bank of Canada, the Canadian economy is predicted to see a 3.2 per cent gain this year as U.S. demand for the country’s exports increases. The report said demand for commodities will keep the Canadian dollar high throughout 2011 and help some Canadian companies importing capital equipment to improve productivity growth.
Getting over the hurdle
RBC chief economist Craig Wright added: “We expect net exports to continue to bolster economic growth in 2011 and 2012, as long as demand for motor vehicles and commodity-related products remains robust; these industries account for two-thirds of Canadian goods sold abroad.”
The report also predicts RBC to increase overnight interest rates to two per cent by the end of the year. That would mean a full percentage point rise from the central bank’s current policy rate. According to RBC analysts, the rate increases, combined with stable inflation expectations, will exert less pressure on long-term interest rates.
Labour market conditions should be stable in 2011 while disposable income will grow by 4.1 per cent, which will back consumer spending. According to the report, net exports and consumer spending helped drive the country’s economy to the top predicted gains it underwent in 2010.
