Canadian economy stuck in ‘soft patch,’ TD warns

The Canadian economy is “stuck in a soft patch,” Toronto-Dominion Bank economists said Tuesday in a bleak report citing stressed households and debt-burdened governments.

“Canada’s economy appears to be at a crossroads,” said economists Craig Alexander, Derek Burleton and Diana Petramala. “After ramping up spending during the recession and recovery, fatigued households and deficit-laden governments have recently been shifting their attention to restraint.”

While exports and business investment were supposed to prop up the economy this year, this transition has been delayed by ongoing global uncertainty, a strong currency and softening commodity prices, they said.

“With no engine firing on all cylinders, economic growth is being held to a meek sub 2-per-cent rate and the jobless rate is stuck above 7 per cent.”

They forecast, however, that the global troubles sideswiping Canada will have eased enough by early next year to boost Canadian exports and prompt businesses to spend.

That, they added, would push economic growth back above 2 per cent and the bring down the jobless rate -- though only “modestly.”

The TD economists also said the correction in the real estate market “appears to be under way,” led by the sharp drop in Vancouver. They expect this to spread given the federal government’s latest restrictions on the mortgage market, which came into effect in early July.

The TD economists are not the only ones predicting slow growth. Canada saw a “disappointing” economic performance in the second quarter and growth will remain modest through to 2013, RBC economists said last week.

Canada’s labour market, meantime, “remains in neutral, with the unemployment rate stuck around 7.3 per cent for the past seven months, or most of 2012,” noted IHS Global Insight economist Arlene Kish this week.

“Hiring is not expected to be robust without clear signals of a strong pickup in demand domestically and especially abroad in the United States, Europe, and emerging economies. Until then, we expect mediocre job growth for the rest of this year and next.”

She doesn’t think the jobless rate will dip below the 7-per-cent mark until 2014.

Original Article
Source: the globe and mail
Author: TAVIA GRANT