(April 3 – 12:10 ET) – Further cuts to interest rates and a boost to disposable income from tax cuts put Canada’s economy in a good position to outperform the United States economy in 2001 and 2002, though risks remain, according to Royal Bank chief economist Craig Wright. Wright made the remarks at the release of the bank’s latest quarterly economic forecast.

“Consumer confidence has been shaken; the wealth effect which has been stimulating demand has now gone into reverse,” said Wright. “With uncertainty still high, more pronounced weakness in consumer spending cannot be ruled out alongside a large debt load.”

Royal Bank economists are forecasting a 2.8% annual average rise in GDP this year and 3.6% in 2002. This change of pace in growth from last year will “feel pretty rough, particularly in the first part of the year when we think the weakness will be more pronounced,” said Wright.

A corporate profit squeeze will slow employment growth to 1.3% in 2001, according to the bank’s forecast, dampening wage growth and reducing gains in personal income. But personal disposable income will rise strongly as a result of tax cuts, boosting household cash flow and consumer spending.

“Federal government tax cuts implemented in January 2001 will add roughly $7 billion to consumers’ pockets this year alone,” said Wright. “Real disposable income is expected to post its largest increase since 1974.” Further interest rate easing by the Bank of Canada in the near-term will further bolster consumer and business sentiment.

According to the bank, Ontario will experience the sharpest downturn of all the provinces, as growth declines from 5.6% in 2000 to 2.5%. Quebec’s slowdown is likely to be milder than Ontario’s, slowing from 4.5% to 2.7%. Central Canada will take the brunt of the increase in unemployment as the rate climbs to a high of 7.1% in the latter half of this year.

Royal says Alberta is on track for growth of 5.2% this year, just slightly off last year’s rate of 5.7%. Strong energy prices, rising business investment in the energy sector and very healthy consumer demand will drive Alberta to its position as the national growth leader.

Newfoundland will finish in second place with growth expected to average 4.3% in 2001-2002, down from the record pace of 1999-2000.

The bank says British Columbia is the only Canadian province where economic growth is not expected to bounce back significantly in 2002 as non-energy commodity prices will likely weaken again and Japanese demand remains anemic at best.