TORONTO - Canadian consumers are expected to carry the domestic economy through the next year and a half, while the United States continues to struggle. According to the latest Royal Bank Financial Group (RBC) economic forecast, Canada s economy will grow by 3.7 per cent in 2002 and 4.1 per cent in 2003, while its counterpart U.S. will grow by only 2.6 per cent in 2002 and 3.3 per cent in 2003.

"Call it the Canadian difference," said Craig Wright, chief economist of the RBC Financial Group. "We're seeing the most favourable environment in years and it has allowed demand accumulated during some leaner years in the 1990s to start bubbling to the surface. This has boosted consumer spending and will keep the Bank of Canada moving aggressively on rate hikes relative to the Federal Reserve."

On the U.S. consumer spending drought, Wright had this to say "The U.S. Fed kept consumers spending during the slowdown when spending on large tickets items usually comes under pressure, keeping the recession short and shallow. But now the well's run dry. The U.S. recovery is unlikely to be as vigorous as that found following a typical recession, when consumers hit the stores hard."

While U.S. car sales are beginning to come off near-record highs, Canadians are expected to catch up and surpass their southern neighbours, following a decade of lagging badly behind.

Housing in the U.S. is also expected to level off as the year progresses, while Canadian sales are poised to hit their highest numbers in more than a decade.

Some spending on both sides of the border is expected to increase, in particular business investment, inventory accumulation and international trade and these factors might be a way for U.S. businesses to increase revenues while their consumers remain cautious.

"It may sound too good to be true, but U.S. business looks like it's ready to start investing again," said Wright. "Looking beyond gloomy business headlines, it seems the bottom has been reached and it's likely we'll see in the second half of this year the first significant increases in machinery and equipment investment in the U.S. in nearly two years."

Canada's dollar is also expected to fare better than its U.S. counterpart. "We expect the Canadian dollar to hit 69.0 U.S. cents by year-end and 71.4 U.S. cents by the end of next year," said Wright.

For a complete copy of the report, go to www.rbc.com/economics/market/pdf/fcst.pdf.

 

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