RBC predicts Canadian economy will grow 3.2% in 2011

Canada’s economy will grow by 3.2 per cent this year, assuming rising American demand for consumer goods and autos, according to a report issued Friday by Royal Bank.

Economists at the bank predict net exports such as cars and commodities will boost economic growth this year and next, as those industries account for two thirds of Canada’s goods sold abroad.

The report from RBC Economics says Saskatchewan will lead the country in growth, followed by Newfoundland and Labrador and Alberta.

Ontario and Manitoba will stay close to the national average while other provinces will fall below.

The report says demand for Canadian commodities will keep the loonie high and help some Canadian companies.

“The strong dollar will support Canadian businesses importing capital equipment to improve productivity growth,” Craig Wright, senior vice-president and chief economist for RBC said in a statement.

The report also predicts the Bank of Canada will increase overnight interest rates to two per cent by the end of the year — a full percentage point higher than the central bank’s current policy rate.

The rate increases combined with anchored inflation expectations will mean less pressure on long-term interest rates, RBC said.

Labour market conditions should be stable in 2011 while disposable income will see a 4.1 per cent gain that will support consumer spending.

“An expected slowing in the housing market, rising interest rates and tightening mortgage lending standards all add up to a levelling out in consumer debt relative to income,” Wright said.

RBC’s 3.2 per cent growth estimate released Friday is unchanged from its December projection. Last month, Bank of Montreal predicted growth for 2011 above three per cent, well above the Bank of Canada’s 2.4 per cent call.

Net exports and consumer spending helped drive Canada’s economy to higher-than-expected gains last year, due to net exports and consumer spending, the RBC report said Friday.