‘Worst likely behind’ for Canada, U.S. economies.
OTTAWA • 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.
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 a severe winter that caused 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 said. It is projecting 2.3-percent 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.”
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.
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 by 2.9 per cent in 2016, up marginally from the previous forecast of 2.8 per cent.
Growth in the global economy, however, is expected to slow to 3.2 per cent this year from 3.4 per cent in 2014.
“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,” TD 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.