The Canadian economy will be dragged down by problems in the U.S. and possibly underperform its American cousin through the remainder of 2008, according to the latest quarterly forecast from TD Economics.
Canadian real GDP is expected to grow by 1% in 2008, lagging the sluggish U.S. growth rate of 1.4%. But there is light at the end of the tunnel, as TD predicts Canadian growth will rebound in 2009 by a still-modest 1.8%, while the U.S. economy will grow by 1.2%.
“Canadians would be best advised to buckle up for the ride,” says TD chief economist Don Drummond.
U.S. consumers are already reeling from the collapsing housing market, which has led to tightened lending practices. The credit crunch has spilled over into global markets, but because of Canada’s proximity, it has also been hit by slowing consumer demand south of the border.
“Our belief is that instead of getting the traditional pent-up demand pop in consumer spending that typically follows a downturn, we will see a muted pace of spending through the end of 2009,” said Drummond. “The non-traditional number and magnitude of economic shocks assaulting the consumer don’t suggest a traditional recovery.”
While Canadians face some of the same problems as Americans — the rising cost of food and fuel, tighter credit markets and slowing growth — there is one bright spot north of the border.
“Canadian households have one good leg to stand on. They will not have to face deterioration in real estate wealth or a sharp slowdown in income growth,” said Drummond. “The same cannot be said of their American counterparts.”
Canada also continues to experience growth on the employment front, with 24,000 net new jobs being created on average for the first five months of the year.