Economists at TD Bank are the latest to downgrade their economic forecasts for both Canada and the world, thanks to supply chain disruptions and the ongoing effects of Covid-19.
In its latest quarterly forecast, TD has trimmed its call for global GDP growth in 2021 from 6.2% to 5.9%. Its Canadian forecast is getting a more dramatic haircut, down to 4.9% from 6.2%.
“The Delta variant’s impact on international supply chains and domestic spending behaviours has slowed the recovery in the near-term and shifted the growth profile into 2022 as the virus ebbs and supply constraints diminish,” it said.
TD’s global forecast still sees 4.7% growth next year.
The bank’s downgrade for 2021 reflects the impact of the virus in Asia, and emerging markets generally.
“Europe has handled the wave of the highly infectious Delta-variant relatively well, outperforming expectations in the first half of the year. In contrast, emerging markets with insufficient vaccine access and health-care infrastructures have been devastated by its effects,” the report said.
Meanwhile, China is enacting regional lockdowns to contain its spread, and various parts of South-East Asia are facing “high infection rates and the related economic disruptions,” it said.
A weaker-than-expected performance by the U.S. also factored into the global downgrade.
That said, TD still sees 5.6% growth for the U.S. this year and 4.1% next year.
“Continued above-trend growth in 2023 is expected to drive the unemployment rate slightly below its pre-pandemic low to 3.4% enabling rate hikes by the Federal Reserve,” it said.
For Canada, TD’s forecast for 2022 remains unchanged at 4.4%.
“The pause in reopening in the near-term will shift the growth patterns into 2022, as the fourth wave ebbs and supply chain constraints ease. Past gains in income, employment, and savings should fuel stronger growth in consumption and business investment next year,” it said.
In the short-term however, international supply constraints, a weak second quarter, and a slower reopening in the face of the fourth wave of Covid-19 are all weighing on the recovery.
Against that backdrop, TD expects both the U.S. Federal Reserve and the Bank of Canada to “maintain the current low rate environment until the final quarter of 2022. At that point, both central banks are expected to initiate rate hiking cycles, with the Fed and BoC policy rates eventually reaching 2.00% and 1.75%, respectively, by 2024.”