Canadians are substantially more optimistic about the economy than they were a year ago, but economists at the country’s biggest banks warn that the economy is poised for a few years of slow growth.

At an economic outlook event in Toronto on Wednesday, Michael Marzolini, chairman of market research firm Pollara, outlined results of a recent public opinion survey. The December poll of nearly 4,300 Canadians revealed a drastic improvement in the moods of consumers since last year.

More than half of respondents — 54% — said they expect the Canadian economy to improve in the next 12 months, up sharply from 20% last year. Only 14% said they expect the economy to worsen, compared to 57% in 2008.

Marzolini noted that in last year’s survey, those with a pessimistic view of the economy outnumbered optimists three to one. This year’s poll shows the opposite results, with three optimists for every pessimist.

“The magnitude of the sea change is unprecedented,” he said. “This is not to say that Canadians are over the economic downturn – they’re still in it, but they expect huge improvement throughout 2010.”

Economists are less optimistic. Speaking at the outlook event on Wednesday, the chief economists of the Big Five banks agreed that growth in the next few years will be more moderate than it was in the years prior to the recession.

“The developed world — Canada, the U.S., Europe and Japan — will be settling into a growth trend that will be very substantially slower than we have thought to be normal in the past,” said Warren Jestin, chief economist at the Bank of Nova Scotia. He said this trend will begin to set in during the second half of 2010.

Jestin expects annual economic growth in Canada and the U.S. to average 2.5% over the next five years. Growth in developing countries such as China, India and Chile, however, will be significantly higher, he said.

Don Drummond, chief economist at TD Bank Financial Group, agreed that growth in the developed world would be sluggish. He said the repercussions of the recession could last into 2013, particularly in terms of the policy and regulatory changes that will result from the crisis.

“We may well get a sustained lower potential growth rate in both Canada and the United States going forward for many years as some of these risks play themselves out,” said Drummond.

But the economists said indicators suggest that a recovery is underway, leaving little risk that the economic downturn will become a “double-dip recession”.

“I think it would take another shock to the system — a substantial shock, much more than what we’ve already seen…in order to warrant concern of a double-dip,” said Sherry Cooper, chief economist at BMO Capital Markets. “The underlying resilience of the system is quite important to remember.”

Cooper said pent up demand and growing consumer confidence will help to stimulate the economy this year, and she expects employment markets in the U.S. to begin to bounce back in the months ahead. Cooper calls for U.S. GDP growth of 2.6% this year.

Investment opportunities

In terms of investing this year, stock markets present attractive opportunities in the first half of the year, according to Avery Shenfeld, chief economist at CIBC World Markets. He noted that the current level of optimism could decline in the second half of the year as the recovery loses momentum and companies have a harder time meeting earnings expectations.

“If you’re going to make money in the stock market, you probably want to make it in the first half of the year,” Shenfeld said.

He added that dividend yields on stocks appear generous compared to bond yields in the current environment.

“In a generally still — by historic standards — very low interest rate environment, I think there is still a hunger for yield that will push equity values ahead,” he said.

Canadians seem to agree that stocks markets have growth potential. The Pollara survey found that stock market bulls outnumber bears by nearly three to one.

“This is a very encouraging finding,” said Marzolini.

Canadians have also gained confidence in terms of their personal financial situation in the past year. Of those polled, 47% said they were holding their own, up from 45% last year, and 18% said they were getting ahead, up from 17%. Those feeling as though they are losing ground fell to 32% from 36% in 2008.

Only 15% of respondents indicated that the recession has had a major negative impact on them and their family. Forty-five per cent of respondents said the downturn had a minor negative impact, and 37% said the recession had no real impact on them.