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Canada entering period of strong economic growth: report

Construction workers work on a condominium development in Toronto December 6, 2012. REUTERS/Mark Blinch (Reuters)

Given the constant fears about falling house prices and rising unemployment, Canadians are understandably skeptical about the country’s economic growth prospects.

But a new report says Canada is entering a period of strong growth, which could put some minds at ease.

Economists at RBC have taken a step back to see how far we’ve come this year. So far, they say things aren’t as bad as they might seem, especially compared to last year.

“Canada’s economy was beaten down in 2012 as a myriad of factors conspired to weaken growth,” the report says, citing a sluggish 1-per-cent growth rate for the final six months of last year.

RBC says the Canadian economy will grow at an “above-potential pace” for the second half of 2013 and into 2014, citing strong exports and a slow, but steadily rising employment rate.

“The period of underperformance for the Canadian economy ended in late 2012,” the economists say, adding that low interest rates and “more vigorous demand for Canadian exports” will keep our economy moving forward.

RBC projects the Canadian economy to grow by 1.8 per cent in 2013 and 2.8 per cent in 2014. It’s also calling for the unemployment rate to drop to 6.6 per cent by the end of 2014, down from 7.1 per cent today.

Natural resource-rich provinces such as Newfoundland and Labrador, Alberta, Saskatchewan and Manitoba will lead the country in terms of economic growth in the coming months.

RBC predicts the pace of economic growth in all other provinces will be below the national average of 1.8 per cent.

The report follows a string of recent positive economic data, including stronger-than-expected housing sales in August and a boost in manufacturing in July.

But both come with caveats.

While Canadian manufacturing sales rose by 1.7 per cent in July, sales are still down 2.1 per cent from December 2011.

“We remain cautiously optimistic about the manufacturing sector,” TD Bank economist Francis Fong said in note on Tuesday. “Today's report perhaps provides early signs that the winds might be changing for the struggling industry.”

In housing, sales were up 2.8 per cent in August over June, and 11.1 per cent from the same month last year. Price rose 8 per cent year-over-year, which shows the housing market is more resilient than many predicted.

However, economists are calling for perspective, noting that sales are still well below historical peak levels.

“Four rounds of insured mortgage rule tightening have worked to temper home sales, which are still 11 per cent below the peak reached in late 2009,” noted TD Bank economist Diana Petramala this week, referring to the federal government’s move to tighten mortgage rules to try to prevent a U.S.-style housing crash.

RBC said it expects housing activity to slow down as a result of rising mortgage rates, but not crash.

“Concerns about a widespread and deep correction in Canada’s housing market are overstated in our view,” the report says. “Affordability, while having deteriorated, continues to show only a modest amount of stress that will likely prove to be insufficient to precipitate a sharp correction as occurred in the early 1980s and 1990s.”