RBC chops Canada GDP forecast

Canada's economy will grow at a slower-than-expected pace because of the escalating global financial crisis, says theRoyal Bank of Canada in an updated forecast released Wednesday.

RBC now expectsCanada's gross domestic product toexpand by a paltry 0.9 per cent in 2008, a 40 per cent reduction from the bank's earlier prediction of 1.5 per cent growth.

"The dramatic worsening in financial markets in mid-September and the attendant credit tightening is expected to impede global growth for the remainder of this year and going into 2009," says RBC"s chief economist Craig Wright in the report.

With the United States economy absorbingthebrunt of the financial squeeze, Canada's ability to sell goods and servicesinto that market and profit from foreign investments will be crimped, economistssay.

Canada's economy should rebound somewhat in 2009, expanding at 1.9 per cent, RBC says.

By contrast, the United States should grow faster than Canada this year, at 1.5 per cent, according the new forecast.

But the American economy will hit the wall next year as thereport now predictsthe United States will expand by a feeble 0.2 per cent.

Canada's flatteninggrowth rate masks decent economic fundamentals, Wright says. "Early signs of moderating housing and labour demand have tempered the outlook for growth in second half but do not point to a recession ahead."

As well, domestic demand is advancing at a 2.2 per cent clip so far this year.

That growth rate isdown substantially from the 4.2 per cent growth experiencedin the same period last year, but well in excess of the revisedgrowth rateforCanadaas a whole this year.