Canada's economy will grow at a slower pace than expected in 2013 and 2014, but will gain momentum in 2015, according to Royal Bank of Canada.
The bank cut its economic forecast to 1.8% this year, down from 1.9%. Next year RBC expects the economy to expand 2.8 %, compared to its previous forecast for 2.9% growth.
However, RBC expects Canada's economy to "reach full potential in the first half of 2015, when inflation is expected to approach the 2% target," Craig Wright, RBC's senior vice-president and chief economist said in a release.
Even though it trimmed its economic growth forecast, RBC is leaving its Bank of Canada rate hike outlook unchanged. It expects the central bank to keep its key interest rate unchanged at 1% this year, with a 50-basis-point increase by the end of 2014.
The expected interest rate increase in 2014 will help the central bank fill the gap between its monetary policy support and Canada's economic growth, the bank said.
Much of this growth will be export-led, says the RBC pointing to the pace of exports in the first quarter of 2013, the fastest since late 2011.
RBC expects even stronger Canadian export figures as the global economy strengthens.
And improving job numbers are expected to provide further economic support. As of August 2013, Canada had an average gain of 12,100 jobs per month for the previous six months.
The bank anticipates housing activity to moderate and the slowing trend in mortgage credit growth to stabilize Canada's frothy housing market.
On the currency front, though, the sliding Canadian dollar will likely get little support from falling commodity prices, says RBC, but the bank expects that to change in 2014.
Regionally, resource-rich Newfoundland and Labrador will lead the national growth in 2013, followed by Alberta, Saskatchewan and Manitoba. The pace in all other provinces will be below the national average of 1.8%, says the RBC report.
