Canada's economy will 'snap back' in Q3, RBC says

Rising energy prices, low interest rates, and federal stimulus will help Canadian economic growth "snap back" after a second-quarter contraction, RBC Economics said Wednesday.

The bank said it is looking for real annualizedgrowth in Gross Domestic Product of3.7 per centin the third quarter of 2016 as rebuilding takes place inAlberta following the devastating Fort McMurray wildfire. Aslower 1.9 per cent gain is forecast for the fourth quarter.

Hurt by the Fort Mac fire and weakness in exports, theCanadianeconomy shrank by 1.6 per cent annualizedin the second quarter the largest quarterly decline in gross domestic productsince the second quarter of 2009, when the country was in the throes of the financial crisis.

• Bank of Canada holds interest rate steady but sees 'substantial rebound' for rest of 2016
• Alberta wildfires get the blame as economy turns in worst quarterly performance in 7 years

"TheAlbertawildfires and sharp pullback in oil sands production in May took the Canadian economy on a brief detour into negative growth," saidCraig Wright, senior vice-president and chief economist at RBC.

"Yet the recovery should spur a similarly sharp rebound in growth in the latter half of this year and we anticipate that momentum will carry over into next year," Wright said.

Back in July, when it released its most recent outlook for the economy, the Bank of Canada said it expected annualizedgrowth of3.5 per cent in the July to September period, followed by 2.8 per cent annualized rate for the final quarter of the year.

No help for loonie

For the full year, RBC sees Canadian GDP growth acceleratingto 1.8 per cent in 2017 from 1.3 per cent in 2016. The Bank of Canada's latest outlook projects full-year growth for 2016 of 1.3 per cent, and 2.2 per cent next year.

RBC is forecasting oil prices will gradually rise to$50 US abarrel this year, and move up to$60 US perbarrel in 2017.

However, the Canadian dollar, which was trading Wednesday at 75.75 cents US,isn't expected to drive muchbenefit from a rise in crude prices. An interestrate hike byU.S. Federal Reserve is likelyin the first half of 2017, RBC said, which will give lift to the U.S. dollar whilethe Bank ofCanadais expected to hold steady on rates here.