Canada’s economy will not be immune to the continued negative impact of U.S. credit market problems, say economists with TD Bank Financial Group.
In TD’s Quarterly Economic Forecast, released today, its economists note that credit market troubles have been longer lasting and more harmful than they initially thought.
A strong Canadian dollar coupled with weaker demand from both overseas and the U.S. will result in modest Canadian economic growth of 1.9% in 2008, and rising to 2.5% in 2009.
“The bottom line is that the Canadian economy is on the cusp of several quarters of weak economic growth, but conditions should improve once credit markets normalize and the U.S. housing correction has run its course,” says Craig Alexander, chief deputy economist at TD.
Alongside dampening exports, manufacturing will struggle as the Canadian dollar averages 97¢ in 2008 and 92¢ the following year and the housing market will cool with housing starts dropping by 20,000 to 210,000 for 2008, according to the forecast.
Canada cannot depend on rising commodity prices to provide a balance for all this as the forecast predicts the general economic slowdown will lead to “a modest pullback in raw material prices.”
The Bank of Canada is expected to cut rates by a further point on January 22 but leave rates on hold after that, while its anticipated the U.S. Federal Reserve will cut rates by a further 50 basis points early in the new year. TD economists warn, however, that lower fed funds rates can only temper the slowdown and won’t alone resolve the problems in the U.S. financial system.
Despite domestic demand that will remain solid, global strains mean Canada’s economic growth is expected to be much the same as that in the U.S. — with Canadian real GDP growth rising by 1.9% and eventually picking up to 2.5% sometime in 2009.
“While there has been much talk about the ability of the global economy to decouple from a U.S. economic slowdown, this assumption is likely to be tested and debunked in the coming quarters,” says Alexander.
Credit market problems prove longer lasting than expected: TD Economics
Quarterly forecast expects a dampening of growth globally
- December 13, 2007 December 13, 2007
- 11:29