Toronto, ON

After another year of mediocre growth, Canada’s economy is expected to perk up in 2014, supported by a pick-up in exports and strengthening business investment, according to the latest Economic and Financial Market Outlook issued by RBC Economics. RBC is forecasting real GDP growth of 1.7 per cent in 2013, 2.6 per cent in 2014 and 2.7 per cent in 2015.

“The U.S.’s slow and subpar recovery has no doubt played a part in the underperformance of Canadian exports through 2013,” said Craig Wright, senior vice-president and chief economist, RBC. “Looking ahead to 2014, we anticipate that stronger growth south of the border will translate to increased demand for Canadian exports, especially as the expansion fans out and business investment accelerates. This expected uptick in both exports and business investment is a critical component of our outlook for Canada’s economy.”

The report indicates that strong exports relative to imports in 2014 will result in trade contributing more than it has in a decade to Canada’s annual growth rate. RBC anticipates that this will cause a rebound in investment activity particularly in the manufacturing and mining and oil and gas sectors.

Extra support to external trade will come from a weakening Canadian dollar over the course of next year, says RBC. The softer currency reflects a leveling off in commodity prices alongside a generally firmer tone for the U.S. dollar.

RBC also assumes that neither the Bank of Canada nor the Fed is likely to adjust the overnight policy rate in 2014, meaning short-term interest rate spreads will hold steady. Longer-term yields on government bonds, however, are likely to rise in line with the gradual, upward shift in U.S. treasury yields; RBC indicates that the pace of increase will be gradual enough to ensure that the economy doesn’t falter and that the Canadian housing market stabilizes.