TD upgrades economic forecast

The Canadian economy continues to clip along nicely, prompting an upgrade in growth expectations from TD Economics. The forecast for 2011 is now 3.0%, up from the bank’s 2.6% prediction in December.

The faster than expected recovery in the U.S. economy gets much of the credit for that boost, along with general global demand for the resources that Canada has in abundance.

Canada ended 2010 on a high note, with annualized growth of 3.3% coming as a bit of a surprise. Even businesses were taken off guard and inventories were drawn down by better-than-expected sales. Inventory replacement bodes well for the near-term, according to Craig Alexander, chief economist for TD Bank Group.

“Depressed inventory levels suggest that businesses will need to rebuild inventories to keep up with the expected future pace of sales, particularly at a time when the U.S. recovery is becoming more fully entrenched,” he said.

But the bank says the 3% growth rate will eventually tail off, falling to 2.5% in 2012.

“Over the next 12-18 months, the overall pace of the Canadian economic expansion is likely to moderate, as interest rates rise and domestic spending cools,” said Alexander. “Despite the risk-filled environment, the most likely outcome is a continued healthy performance by the Canadian economy in 2011 and 2012,”

TD’s growth projections should encourage double digit corporate profit growth in 2011, and high single-digit growth in 2012. While inflation shouldn’t be too much of a threat, Alexander predicts the Bank of Canada will raise interest rates by 1 percentage point in the second half of 2011, with another percentage point being added in 2012.

Staff

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