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Canada's economy will 'snap back' in Q3, RBC says

Rising energy prices, low interest rates, and federal stimulus will help Canadian economic growth 'snap back' after a second-quarter contraction, RBC Economics said Wednesday.

Crude prices expected to rise, but little lift seen for Canadian dollar

A charred oven is shown in the Abasand neighbourhood in this May 2016 photo. Reconstruction will contribute to a sharp economic rebound in the third quarter, RBC Economics says. (Jonathan Hayward/Canadian Press)

Rising energy prices, low interest rates, and federal stimulus will help Canadian economic growth "snap back" after a second-quarter contraction, RBC Economics said Wednesday.

The bank said it is looking for real annualized growth in Gross Domestic Product  of 3.7 per cent in the third quarter of 2016 as rebuilding takes place in Alberta following the devastating Fort McMurray wildfire. A slower 1.9 per cent gain is forecast for the fourth quarter.

Hurt by the Fort Mac fire and weakness in exports, the Canadian economy shrank by 1.6 per cent annualized in the second quarter — the largest quarterly decline in gross domestic product since the second quarter of 2009, when the country was in the throes of the financial crisis.

"The Alberta wildfires and sharp pullback in oil sands production in May took the Canadian economy on a brief detour into negative growth," 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.

Back in July, when it released its most recent outlook for the economy, the Bank of Canada said it expected annualized growth of 3.5 per cent in the July to September period, followed by 2.8 per cent annualized rate for the final quarter of the year.

No help for loonie

For the full year, RBC sees Canadian GDP growth accelerating to 1.8 per cent in 2017 from 1.3 per cent in 2016. The Bank of Canada's latest outlook projects full-year growth for 2016 of 1.3 per cent, and 2.2 per cent next year.

RBC is forecasting oil prices will gradually rise to $50 US a barrel this year, and move up to $60 US per barrel in 2017.

However, the Canadian dollar, which was trading Wednesday at 75.75 cents US, isn't expected to drive much benefit from a rise in crude prices.  An interest rate hike by U.S. Federal Reserve is likely in the first half of 2017, RBC said, which will give lift to the U.S. dollar while the Bank of Canada is expected to hold steady on rates here.

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