Stronger exports will partly offset oil price shock, RBC says

Written By doni icha on Kamis, 12 Maret 2015 | 22.39

RBC Economics has downgraded its outlook for Canadian GDP growth in 2015 to 2.4 per cent because of continued low oil prices.

That estimate is 0.3 percentage points lower than its previous outlook for Canada's economy, but still a strong pace of growth, RBC says in a report released today.

That's because a boom in exports is expected to provide a lifeline for Canadian jobs and economic expansion.

"The depressing effect of the downturn in the oil and gas sector is projected to be largely offset by a ramping up of manufacturing activity,RBC economists wrote in the report.

"After more than a decade of the manufacturing sector shrinking relative to the size of the economy, activity levels started to climb with manufacturing output increasing in four of the past five years."

While a decline in capital spending in the oil and gas sector will mean a decline in business investment, the outlook for investment from other industries is much improved, the report said.

In 2014, Canada exported 5.4 per cent more goods by volume, with the mix of exports shifting away from commodities to industrial goods, consumer goods, building materials and equipment.

That export improvement will pick up this year with increased demand from the stronger U.S. economy and the impact of a lower Canadian dollar, RBC said.

It estimated output in the manufacturing sector was seven per cent below its 2009 peak at the end of 2014, but would pick up throughout the year.

The other bright spot for the economy is the Canadian consumer, who could have $11 billion more in purchasing power this year because of lower energy prices.

"Unlike US consumers who are largely expected to spend these "extra" funds, we are assuming Canadian consumers will spend one half of the energy-related savings with some portion going to paying down debt and the rest toward saving," RBC said.

That could simultaneously boost consumer confidence and reduce our high consumer debt loads.


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