TD Economics says ‘worst is likely behind’ Canada, U.S. economies, but Greece remains ‘wild card’ for global growth


TD Economics says the worst is likely behind the Canadian economy after a "disastrous" first quarter, brought on by a frigid winter and plunging oil prices.



The global economy has taken its knocks so far this year, with Canada and the United States receiving a lot of the hard hits — and a disappointing performance by China and ongoing worries about the Greek debt crisis have not helped, according to TD Economics.

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Output worldwide in 2015 “continues to move in fits and starts,” shrinking growth overall this year to 3.2 per cent from 3.4 per cent in 2014, the bank said Thursday in its Quarterly Economic Forecast.

“Among advanced economies, the euro area and Japan have been bright spots, supported by lower currencies and improved financial conditions, due in part to their respective programs of quantitative easing,” TD said.

“In contrast, economic activity has disappointed in the U.S., U.K. and Canada. The setback in the U.S. and improvement in the euro area has challenged the narrative of central bank divergence.”

TD expects Canada’s gross domestic product to advance 1.6 per cent this year, after growth of 2.5 per cent in 2014. Much of that slowdown can be blamed on the plunge in oil prices and severe winter that cause GDP to shrink 0.7 per cent in the first quarter.

“External developments have conspired against Canada’s economy so far this year, as soft U.S. demand to start 2015 delivered a powerful blow to an economy already reeling from the sharp decline in oil prices,” TD said.

But “the worst is likely behind us.” The bank is projecting 2.3 per cent growth in 2016.

“Although the impact of lower oil prices on corporate profits and business investment are forecast to persist in the near term, the anticipated boost to exports from a lower Canadian dollar and resurgent U.S. economy should pave the way to better growth numbers.”

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The Bank of Canada, which cut its trendsetting interest rate to 0.75 per cent in January after keeping it at one per cent since mid-2010, is relying on the same positive elements as TD to get growth back on track.

After what bank governor Stephen Poloz admitted was a “disastrous” first quarter, policymakers had forecast an increase of just 1.9 per cent this year, but with growth picking up in 2016 to 2.5 per cent. Poloz will update the bank’s forecasts on July 15, when it announces its next interest rate decision and releases the central bank’s quarterly Monetary Policy Report.

Meanwhile, the TD outlook for U.S. growth is 2.5 per cent for this year, up slightly from 2.4 per cent in 2014. It expects the economy to grow 2.9 per cent in 2016, up marginally from the previous forecast of 2.8 per cent.

The global economy, however, “continues to move in fits and starts,” TD warned.

“Excitement turned to disappointment in the first quarter of this year, particularly in the world’s largest economies of China and America,” it said.

TD Economics anticipates global growth to slow from 3.4 per cent in 2014 to 3.2 per cent this year.

“Just as it seems that break-out growth has been achieved, something throws it off course and expectations are revised down. This pattern held again early this year. Excitement turned to disappointment in the first quarter, particularly in the world’s largest economies of China and America. As these economies slowed, emerging markets also sputtered, moving their own idiosyncratic challenges to the fore,” it said.

“However, rising momentum as the year progresses supports a world economic outlook of 3.6 per cent growth in 2016,” the report said.

Greece remains “the wild card,” according to TD.

“Frustration between Greece and its creditors over negotiations on the bailout agreement have recently come to a head,” it cautioned.

“Our view remains that both sides will eventually come to an agreement. . . . In the meantime, more volatility is likely, with a growing possibility of capital controls and a referendum on euro area membership in Greece.”

The Bank of Canada has said any fallout from the Greek crisis would have only a “moderate” impact on Canada.




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