Brighter outlook for Canada’s economy in 2016: RBC


In the first half of 2015, Canada was technically in recession. That changed in the third quarter when the economy switched into higher gear, with surging exports, strong consumer spending and housing market activity. The momentum is expected to pick up and continue through 2016, according to an RBC Economic Outlook released today. Real GDP growth is forecast to rise from 1.2 per cent this year to 2.2 per cent in 2016 and 2.7 per cent the following year. RBC Chief economist Craig Wright said he expects to see “sustained economic growth” in the coming year.

It will vary, of course, from region to region. In Ontario, exports are key, and they are affected by two factors; the strength of the US economy and the weakness of the Canadian dollar. Both of those factors will line up favourably in 2016. In addition, Ontario’s very strong housing market and strong consumer spending will continue to offset the effects of decreased business investment and weakness in the energy sector, according to Wright.

Investment in the energy sector is expected to decrease further in 2016. The outlook for Alberta is therefore “cautious,” with subdued growth after a forecast economic contraction of 1.3 per cent in 2015. The repercussions of low oil prices are being felt through the economy, with retail sales, especially car sales, down significantly. The province’s two biggest housing markets also saw double-digit declines. Employment has also declined, and that situation will persist through 2016.

A surge in exports, firm consumer spending and housing market activity supported a boost in the Canadian economy halfway through 2015. Growth in these sectors more than offset a decline in business investment and ongoing weakness in the energy sector. Moving into 2016, we expect to see sustained economic growth.

The situation is similar in Saskatchewan, where low energy prices have been a challenge. However, the province should see a rebound on the strength of its agriculture sector. That sector saw big weather-related losses in 2014 and 2015, but the bank assumes a return to more normal conditions in 2016, which would result in an 8 per cent increase in output.

In Nova Scotia, which has seen little economic growth for five years, the outlook is brighter next year, says RBC, thanks to construction activity, shipbuilding, and rising non-energy exports. The multi-billion dollar Arctic Offshore Patrol Ships (AOPS) contract with the federal government will be a significant boost as the first full year of ship-building work on this contract is anticipated in 2016. Activity is expected to ramp up as ships move through their construction phases. Shipbuilding work will also generate demand along supply chains in other industries around the province particularly metal fabrication. While manufacturing has seen job losses year to date in 2015, there has been an uptick since summer, and increased activity in the industry raises the prospect of further gains ahead.

It will take time for Newfoundland and Labrador to recover from this year’s 20 per cent decline in oil production. Export revenues from crude have declined by $3 billion, RBC says, in the first three quarters of 2015. Production should “stabilize,” however, in 2016, and new wells will be brought online, particularly at Hebron. Investment in Newfoundland’s mining sector is also forecast to pick up.

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