Canada recovering, but growth to be modest over next two years, TD Bank says
OTTAWA - Canada's strong rebound from recession won't be sustained as headwinds gather to slow growth, according to a new report from the TD Bank.
In its report, the bank said that while most countries fell into recession together, they are emerging separately and need individual policy prescriptions.
The quarterly report predicts the five-per-cent growth rate recorded by the economy in the last three months of 2009 will slow to about 3.5 per cent this year and below three per cent next.
"An average of three per cent growth is not a terrible outcome, but it is a little disappointing given the depth of the recession," said Craig Alexander, TD's deputy chief economist.
That level of growth will produce about 20,000 to 25,000 new jobs each month, a moderate rate of job creation.
Alexander said the fourth-quarter explosion of growth may have given Canadians false hopes of a V-type recovery - a sharp upward bounce after a quick fall - but it isn't going to happen. A cooling housing market, rising interest rates, the end of government stimulus spending and the high loonie will all act as brakes to growth, he said.
Businesses may have psychologically made their peace with a dollar at par with the U.S. currency, but it still will mean that exporters will find it harder to sell abroad. And rising interests rates, which the bank said could start as soon as July, will limit the ability of Canadians to keep spending.
The bank said that by 2013, once interest rates return to more normal levels, the average household debt service costs will rise to 9.3 per cent of income from the current six per cent and households will have to devote a greater share of their income to servicing their debt.
The bank's quarterly report said the global recession is over, but the recovery will be uneven. While the developing world, led by China, is heating up, the industrialized world, including Canada, will advance more slowly than would be normal following a deep recession.
As such, the bank said the developing world needs to start withdrawing stimulus spending and move into a tightening phase. The advice is different for industrialized countries, where the bank warns removing stimulus too quickly could stall the recovery. By Julian Beltrame