Canada’s growth hit by cautious business spending
Cautious business spending and increased U.S. fiscal restraint will weigh on Canadian growth, according to the latest Economic and Financial Market Outlook issued today by RBC Economics. RBC trimmed its real GDP growth forecast to 1.8 per cent through 2013, following softer-than-expected growth in 2012.
After boasting a relatively strong economic performance over the past several years, Canada’s economy hit a speed bump in late 2012, said Craig Wright, senior vice-president and chief economist, RBC. RBC notes that strong company balance sheets will help to abet business spending going forward. At the same time, high levels of household debt will limit spending on housing as well as goods and services, although moderate gains in income and employment will partially offset this, RBC says.
Looking at the Bank of Canada’s policy rate, RBC expects it to remain at the current level for longer than previously thought. The main driver of this adjustment is weaker than expected growth in Canada over the second half of 2012, which resulted in a widening output gap – the difference between actual and potential output – and lower inflation.