Economy shrinks: RBC

The Royal Bank says the Canadian economy will shrink by 2.4 per cent this year, due in part to the substantial 5.4 per cent annual GDP contraction in the first quarter, the worst quarterly performance since 1991.

TORONTO — The Royal Bank says the Canadian economy will shrink by 2.4 per cent this year, due in part to the substantial 5.4 per cent annual GDP contraction in the first quarter, the worst quarterly performance since 1991.

“Our forecast is for the second quarter’s contraction to be smaller, although, like the United States, Canada is facing the headwinds from the auto industry’s problems,” the bank says.

“The outlook for the consumer for the remainder of this year is a mixed bag. Spending has sagged in recent months as the financial market crisis and job cuts took a large bite out of confidence and sent consumers to the sidelines.

However, with interest rates falling to all-time lows and impending government spending programs expected to limit the number of jobs lost, a moderate rebound in spending is likely later this year.”

It also said activity in Canada’s real-estate markets has already picked up, with sales of existing homes rising 11.2 per cent in April.

The Royal predicts growth will return next year as the U.S. and Canadian economies benefit from low interest rates, firmer credit markets and government stimulus programs.

“Export demand is likely to rise as commodity prices stabilize and the U.S. economy (still Canada’s biggest trading partner) climbs out of recession. However, tempering this source of future strength will be an attendant rise in imports, reflecting both increasing Canadian domestic demand and an appreciating loonie.”

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