Thursday, July 3, 2008

Royal Bank optimistic about economy

Royal Bank optimistic about economyThe Royal Bank is forecasting oil will fall to $90 US a barrel in 2009. (CBC)

The Royal Bank of Canada is forecasting the current economic turmoil will ease, with forces such as the high dollar, surging oil prices, flagging growth and inflation improving over the next two years.

The bank's July forecast, released Thursday, calls for real growth of 1.4 per cent this year, dismissing the first-quarter shrinkage as a surprise in Canada's "vibrant" economy.

Chief economist Craig Wright also predicts:

Oil will fall to $90 US a barrel in 2009, down from about $146 early this month.Inflation will rise to over 2.5 per cent for the rest of 2008, but fall to under two per cent next year with the oil-price drop.Exports to rise as the U.S. economy recovers next year.Commodity prices to weaken this summer as world growth slows.The loonie to end the year at 94 cents US, and slip to 89 cents US by the end of 2009.Further weakening, but no crash, in the housing market.

Some aspects of the forecast are contrary to other bank outlooks.

Jeff Rubin, chief economist at CIBC World Markets, recently boosted his oil-price forecast to an average of $150 US a barrel this year and $200 US by 2010.

Wright acknowledged that his U.S. forecast could be weakened if oil prices remain high.

He's looking for U.S. economic growth of 1.5 per cent this year, boosted by the federal government rebate cheques and a 3.25 percentage point drop in interest rates since the middle of 2007.

Other factors are brightening the outlook, including an easing of the credit crunch, meaning lenders can raise money more easily and make loans.

U.S. job losses, which slowed to 38,000 in April and May, are far below the 113,000 a month in a typical recession, he said.

The U.S. housing crisis is still a big problem, but is expected to bottom out in 2009 as lower interest rates and prices encourage buyers.



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