Canada expected to post respectable growth while U.S. sputters

Jim MacDonald

(September 16, 2002) Economists at the TD Bank say the economic struggles of the United States will not be enough to undermine the impressive performance of Canada’s economy this year.

In their quarterly forecast, TD economists said today the growth of Canada’s economy would slow in the second half of the year from the heated pace of the first half. The economy is predicted to ease back to a more moderate clip of slightly less than 3% growth from July through December.

Statistics Canada says the economy grew at an annualized pace of 6.2% in the first quarter of the year and 4.3% in the second quarter.

“Canada’s economic expansion has become remarkably well-balanced,” said a statement from Don Drummond, chief economist at TD Bank Financial Group in Toronto. “Short of a relapse of the U.S. economy into recession, which would weigh on our exports, Canada’s economic engine is likely to continue to chug ahead at a healthy cruising speed.”

Any fears of a relapse by the U.S. into recession are overblown, he added.

“Judging by the sour tone of financial markets, there is little confidence that the U.S. recovery is here for good,” said Drummond. “In our view& the U.S. recovery may be weak and hesitant, but it is fully intact. And that is good news for Canada.”

Canada has steadily outperformed the United States this year. TD Bank predicts Canada will see real GDP growth of 3.3% in 2002 and 3.2% next year.

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BoC eases up on tightening, holds key rate at 2.75%

The moderation of economic growth in the second half of 2002 will put the Bank of Canada back in tightening mode, said the report. The U.S. central bank is expected to leave rates unchanged until next spring.

The TD forecast projects that the Bank of Canada will make its last rate hike of the year in October, but will maintain a tightening stance in 2003. Rates have been bumped up on three separate occasions this year.

By the end of 2003, TD economists say Canada’s overnight rate will be more than 200 basis points above its current level of 2.75%.

“As long as the U.S. economy continues to claw its way back, Canada’s economy is home-free,” said Drummond.

Filed by Jim MacDonald, Advisor.ca, jmacdonald@advisor.ca.

(09/16/02)