Canada will see slower economic growth in 2019, due to an energy-led downturn and slowing global economy, RBC Economics said in a forecast published Friday.
RBC has downgraded its 2019 Canadian growth forecast to 1.5% from 1.7%, citing the energy sector’s weakness as well as slower housing and consumer spending. After a slow end to 2018, the report forecasts the economy to recover “somewhat” as the year proceeds.
It predicts the downturn in the energy sector to be short-lived and doesn’t expect a “dramatic pullback” in investment like when prices fell in 2015 and 2016. The forecast assumes that oil will hold at about current levels in 2019 and “grind higher in 2020,” Craig Wright, senior-vice president and chief economist, said in a statement.
RBC is predicting lower levels of consumer spending as households get used to higher interest rates. But as the unemployment rate holds stable at a more-than 40-year low, RBC expects rapid wage gains as companies face labour shortages.
“A resumption of trend-like growth combined with accelerating wage growth and persistent capacity constraints will begin to exert upward pressure on prices heading into 2020,” the report says. “Against this backdrop, the Bank of Canada is likely to move the policy rate closer to its neutral level with a rate hike expected in the fourth quarter of 2019 and a final increase in 2020.”
British Columbia shows “few signs” of a slowdown despite a drop in housing prices, as the start of construction on a $40 billion LNG project bolsters the province’s economy. Growth in B.C. is expected to be about 2.5%, RBC said, the highest across Canada.
Newfoundland and Labrador is also expected to exceed other provinces’ growth at about 2.3% this year.
Globally, RBC expects growth of about 3.5%, considering a likely slowdown in China and Brexit uncertainty still looming over world markets. Economic growth in the U.S. should support Canada’s exports to that country, the report said.
Read the RBC forecast here.