TORONTO, Ont.-- As the global economy continues to recover, demand for Canada's exports will pick-up, fuelling real GDP growth in the period ahead, according to the latest RBC Economics outlook. RBC is forecasting real GDP growth of 2.5 per cent in 2014 and 2.7 per cent in 2015.
"For the last four years the household sector has been the key driver of Canada's economic growth. We expect that to change in 2014 - as the global economy continues on its path to recovery, exports will become increasingly central toCanada's growth story," said Craig Wright, senior vice-president and chief economist, RBC. "Not only will the drivers of growth change, but the pace of economic activity will gather speed following two years of sub-potential increases."
RBC notes that this transition has already started to happen. Net international trade contributed a relatively modest 0.3 percentage points to growth in 2013, which represented the first positive contribution since 2001.
Export volumes stood 5.0 per cent below their pre-recession peak at the end of 2013. A large part of this underperformance is attributable to the subpar U.S. recovery, says RBC. Competitiveness issues also weighed on growth; the relatively strong Canadian dollar during the post-recession period was one of these factors.
"It is the changing fortunes of both the U.S. economy and the Canadian dollar that will act as catalysts for stronger exports in the year ahead," added Wright.
RBC expects the loonie will trade at $0.87 U.S. at the end of 2014 and $0.85 U.S. at year-end 2015.
"A weaker Canadian dollar enhances the competitiveness of Canadian goods in the U.S. market - historically, a 10 per cent depreciation boosting export volumes by 3.3 per cent in the following two years," explained Wright.
RBC expects the majority of provincial economies in Canada to accelerate their pace of growth in 2014. Alberta will stand atop the provincial growth rankings, well ahead of Ontario, the only other province to grow at or above the national rate. The remaining provinces will grow at varying paces below the national average.