Winnipeg Free Press - PRINT EDITION

Lower loonie will boost economy, RBC predicts

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OTTAWA -- Canada's largest bank is forecasting the economy will do slightly better than most expect in the next two years, and one reason why is that the Canadian dollar won't.

The Royal Bank (TSX:RY) is projecting growth rates of 1.8 per cent for 2013 and 2.9 per cent for 2014, which is a couple of decimal points better than the consensus estimate federal Finance Minister Jim Flaherty will use in Thursday's budget.

The RBC forecasts Manitoba will have the fourth-strongest growth rate in the country with a 2.7 per cent boost in the GDP in 2013, which matches 2012's rate, second-highest among the provinces. It's calling for 2.8 per cent growth for 2014, third-highest.

The bank says increased capital spending, strengthening U.S. demand for Manitoba's manufacturing and utilities exports, as well as improved strength in the construction sector will contribute to the province "holding the steady, solid course that it has been treading since early 2012."

But the bank says the Canadian dollar is unlikely to see sustained parity again during the next two years, averaging at about 96 cents US in 2013 and 98 cents US in 2014.

The loonie was down 0.17 of a cent at 97.65 cents US in early trading Tuesday.

"Previously, we had a firmer Canadian dollar outlook," the RBC economists say in a report released Tuesday.

"However, reduced Bank of Canada rate-hike expectations, steady to lower commodity prices and softening demand for Canadian financial assets are likely to result in Canada's currency trading below parity with the U.S. dollar for the forecast horizon (two years)."

While that's bad news for snowbirds and cross-border shoppers, the lower loonie should do wonders for exporters and Canadian manufacturers, reducing the price of what Canadians ship abroad and raising the cost of imports.

The new numbers represent a climbdown for the bank, which last year had expected the Canadian economy would be far stronger at this point.

On Thursday, Flaherty is expected to announce he will base his budget calculations on a 1.6 per cent growth rate this year.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition March 20, 2013 B4

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