Canada to skirt global turbulence, record healthy growth this year: RBC

Canada’s recovery is getting a vote of confidence from economists at the Royal Bank, who in a new report judge the economy sufficiently resilient to withstand turbulence from abroad.

The RBC’s new quarterly forecast anticipates the economy will rebound to 3.1 per cent growth this quarter, which ends in June, and record a 2.6 per cent gain in gross domestic product overall for both 2012 and 2013.

But fresh data from the Conference Board suggests headwinds from abroad are already affecting Canada’s corporate sector.

The board’s May index on industry profitability found 13 of 49 industries reporting a decline in profitability and several that had been posting strong increases at the beginning of the year now showing a slowdown.

“The weaker profitability outlook is linked to the ongoing European debt crisis,” the think-tank said, also citing slowing growth in emerging markets and depressed prices in the commodities that Canada sells to the world.

The RBC economists acknowledged the external difficulties and have incorporated a slower 3.5 per cent global growth profile for this year. But they are buoyed by Canada’s strong fundamentals and believe policy-makers will be successful in preventing a European financial meltdown.

“We’re relatively bullish,” said Craig Wright, RBC’s chief economist. “On balance, conditions for growth are positive, supported by a continuation of a low interest rate environment and a Canadian financial sector that is healthy and ready to provide credit.”

Wright said the recent bad news has dampened confidence, but has not changed the overall outlook.

“It’s still basically a risk story,” he said of Europe. “In a sense it’s more of the same: we get dragged to the edge of the cliff and then get dragged back.”

The other risks the bank says must be averted are the possibility of a harder-than-expected landing for China, and the danger that political gridlock in the U.S. will prevent a compromise to extend stimulative fiscal measures beyond this year.

The RBC’s view of the economy is at the upper limit of private sector economists’ range, as well as being above the Bank of Canada’s 2.4 per cent growth expectation for both years.

Last week, the central bank signalled it may downgrade its own forecast in the future. In a statement, it noted that “global economic growth has weakened,” citing European debt problems and weaker than expected performances in emerging markets and the U.S.