Canadian economic growth will snap back after a second-quarter contraction and will get further lift in 2017 from rising energy prices, low interest rates, and federal stimulus.
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This is according to the RBC Economics Outlook report.
The RBC forecast calls for real Gross Domestic Product (GDP) growth of 3.7 per cent (annualized) in the third quarter of 2016 as rebuilding takes place in Alberta, followed by a slower 1.9 per cent gain in the fourth quarter.
"The Alberta wildfires and sharp pullback in oil sands production in May took the Canadian economy on a brief detour into negative gro
th," said Craig Wright, senior vice-president and chief economist at RBC. "Yet the recovery should spur a similarly sharp rebound in growth in the latter half of this year and we anticipate that momentum will carry over into next year," Wright said.
Canadian GDP growth is expected to accelerate to 1.8 per cent in 2017 from 1.3 per cent in 2016.
With core inflation likely to hover around the Bank of Canada's 2 per cent target, there is little reason for the central bank to take any action on interest rates.
RBC expects the Canadian central bank to hold its overnight rate steady through the remainder of 2016 and 2017 as well.
RBC projects that oil prices will gradually rise to $50/barrel in 2016 and push higher toward $60/barrel in 2017.
However, the Canadian dollar is expected to see minimal benefit from higher oil prices: a U.S. Federal Reserve interest rate hike is likely in the first half of 2017, which would bolster the U.S. dollar, while the Bank of Canada is expected to hold steady on rates.
RBC expects the economies of Alberta, Saskatchewan, and Newfoundland and Labrador to contract further this year as the oil-producing provinces continue to struggle with low revenues and private sector restraint.
Some of the recent weakness in Alberta from the wildfires in Fort McMurray should start to reverse in the second half of 2016.
All other provinces except New Brunswick are expected to continue to expand in 2016, albeit at varying paces. ■