RBC outlook for 2022 optimistic even with Omicron and sees Canada “back to the future”

RBC Economics has released an “optimistic” outlook for the Canada’s economy in 2022.

However, the report acknowledged that the emergence of the new COVID-19 Omicron variant is casting “another shadow”.

But bank economists say it “remains unclear whether steps beyond travel restrictions and increasing vaccination rates will be required”.

“Canada’s recovery hit some speedbumps in 2021 but likely exited on stronger footing supporting our forecast for GDP growth of 4.7% for the year,” stated the report released Thursday (December 2).

The macroeconomics outlook was prepared by RBC economists Craig Wright, Dawn Desjardins, and Nathan Janzen.

“We expect the momentum to be sustained in 2022 and project the economy will post a 4.3% gain,” the authors wrote.

The projection is mostly in line with the projection made by the Bank of Canada in its October 27, 2021 monetary policy report.

In that report, the national bank stated that it is forecasting economic growth of around five percent in 2021, followed by 4.25 percent in 2022 and 3.75 percent in 2023.

A section of the RBC Economics’ outlook report is titled “2022 – back to the future”.

In addition to GDP projections, bank economists wrote in that section that “outside COVID-related risks, supply chain disruptions, labour shortages and rising input costs will act as headwinds to growth early next year”.

“Some of these challenges will fade as the global economy more fully recovers, but labour shortages are expected to persist given long-run demographic headwinds to labour force participation from an aging population,” the authors stated.

As for COVID-related risks, “Our baseline assumption is that the elevated level of vaccinations will mean that any future restrictions on activity will be focused and short.”

Moreover, the outlook examined the risk posed by inflation.

“Base effects associated with reopening, rising commodity prices, policy stimulus and higher input costs have boosted inflation rates,” the report noted.

However, “some of these factors will ease as time passes”.

The bottom line, “We are optimistic about the outlook but risks remain elevated given the uncertain path of the virus.”