The Toronto-Dominion Bank has sharply downgraded its economic forecast for Canada and expects more than 500,000 jobs to disappear by the end of the year compared with the peak of the job market, casting more doubt on the prospects for a painful but short-lived recession.
"There is no doubt that 2009 will go down in the history books as one of the most difficult economic years for Canadians," wrote Beata Caranci, TD's director of economic forecasting.
The bank sees Canada's economy shrinking by 2.4 per cent this year, with the first three quarters in negative territory, before posting sluggish growth of 1.3 per cent in 2010. It had previously forecast a contraction of 1.4 per cent this year and growth of 2.4 per cent in 2010.
That gloomy forecast suggests the recession will be deeper and longer than the Bank of Canada has predicted.
In January, the central bank said real gross domestic product would decline by 1.2 per cent this year and rebound by 3.8 per cent in 2010, a far rosier view than most private-sector economists. But when it cut its key policy rate earlier this month to 0.5 per cent, it noted that the outlook for the global economy had continued to deteriorate, a sign that it may be preparing to lower its forecast.
Caranci emphasized that "this is not a made-in-Canada recession, but the country has certainly imported all the problems surrounding financial market uncertainty, a weakened export market and the plunge in commodity prices that comes with a global recession." As a result, Canada's economy won't recover until conditions in the global economy, particularly in the United States, stabilize, she said.
"We feel that too many issues related to the health of the global financial system remain unresolved for a speedy economy recovery," Caranci added.
Canada's job market will be particularly hard-hit as the recession and plummeting commodity prices eat into national income. The bank expects that 583,000 jobs will be lost by the end of this year compared with the peak of the job market, more than the total employment losses in the recession of the early 1990s. Those losses will push the country's unemployment rate to nearly 10 per cent by the last quarter of 2009, a level that will persist through much of next year, the bank said.
In its forecast, the bank said corporate profits, which dropped sharply in the fourth quarter of 2008, will continue to tumble this year. It also expects nominal gross domestic product, a rough measure of the over-all tax base, to contract by 4.5 per cent in 2009, a factor that will "come to bear on employment, wages, capital investment and government revenues as the year rolls forward."
TD's forecast calls into question the planning assumptions of the federal government, which based its January budget on a more modest drop of 2.7 per cent in nominal GDP this year.
Also yesterday, the Royal Bank of Canada lowered its 2009 economic forecast. It now sees real GDP contracting by 1.4 per cent, compared with its previous forecast for a decline of 0.5 per cent. It maintained its 2010 forecast for growth of 2.6 per cent.
The downgrades came a day after the International Monetary Fund warned that Canada's economic output "is likely to contract significantly in the near term" before recovering as government stimulus starts to gain traction. The international body said that Canada is better positioned than many countries to weather the economic storm, but warned that "downside risks predominate, including negative spillovers if the global environment worsens more than expected."
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