Skip to main content
- TD Economics predicts deeper and more extended recessions on both sides of the border. - U.S. economy to contract by 3.1% in 2009 and Canada to follow suit with a 2.4% retreat. - Outlook for 2010 slashed in half, with slow recovery predicted. - U.S. and Canadian economies expected to show modest growth of 1.4% and 1.3%, respectively, in 2010. - Global economic outlook also cut to -1.6%, in 2009, the first contraction on record. TORONTO, March 12 /CNW/ - A report published today by TD Economics has downgraded the U.S., Canadian and global economic outlook for 2009 and 2010 due to slow progress in improving global financial conditions and a significant broadening in economic weakness across the global stage. Chief Economist Don Drummond noted that "the near-term weakness appears more pronounced, with tentacles reaching across the globe". The capitulation of the U.S. consumer at the end of 2008 was much sharper than anticipated according to the report. This has been a key catalyst for accelerating losses in global trade and distributing the economic shock around the world. The recession in the U.S. economy is now expected to extend to the third quarter, resulting in a contraction of 3.1% for 2009 as a whole. Canada as an unfortunate bystander will see real GDP growth contract by 2.4%. A second element of the forecast has to do with the timing and strength of an eventual economic recovery. With job losses expected to extend into 2010, TD Economics believes the risks in recent months argue that the recovery will be shallower than originally perceived for 2010. The U.S. economy is expected to expand by 1.4% in that year, while Canada will produce a near-matching pace of 1.3%. There are five key pillars that form the TD Economics view. "We've got big problems being matched with big plans, making for an uncertain and volatile ride," notes Drummond. "If all five come to fruition quickly and strongly, then the pace of economic recovery will be considerably stronger than we are currently predicting. However, if some of the five ingredients are not substantially realized in the next 3-6 months, we will consider downgrading the outlook further." The five pillars to recovery: 1. The U.S. real estate market must stabilize in the next 3-6 months. Although most market attention is placed on the rate of decline in U.S. home prices, turning points in prices lag that of sales and inventories by several months. However, resumption in price growth would trigger completion of the cycle of housing-related write-offs, restoring the health of the financial industry. 2. Credit conditions must continue to improve. The U.S. is making slower-than-expected progress on restoring its financial health, which was a key risk to the original assumptions set out in the December and September QEF reports. Although short-term financing rates have receded dramatically in recent months, little progress has been made on medium-term financing rates. Government policy has also been slow to address the core problem of toxic assets on the balance sheets of financial institutions. Drummond said "there are still too many loose ends on the financial front, which is why our forecasts reflect a longer recession in 2009 and a shallower recovery in 2010." 3. The increased prevalence of systemic risk in the global financial system must diminish. The accelerated deterioration in the global economy has exacerbated some underlying financial fragilities. A substantial amount of loans from Western European banks to Eastern European borrowers have quickly soured, made worse by the sharp depreciations in many East European economies. This will be a drag on borrower and lender economies alike, thereby slowing the pace of economic recovery. TD Economics is presuming that attempts to stabilize the financial systems and economies of Central and Eastern Europe will avoid the worst case scenario of total meltdown, which would have dire knock on effects to creditors in Western Europe and even North America. 4. Restructuring of the auto sector must continue to make progress. If the Big 3 North American auto assemblers are allowed to fail outright, the economy would certainly be worse than currently projected. This view does not preclude these firms from seeking bankruptcy protection and restructuring, but does assume their operations continue in some, albeit diminished, form. 5. The U.S. fiscal stimulus package must be implemented swiftly and the economic boost needs to be in the ballpark of our current expectations. The fiscal stimulus is projected to lift the level of U.S. real GDP by 2.3% by the end of 2010. TD Economics employed relatively conservative assumptions, as it rests in the middle of the Congressional Budget Office (CBO) range of potential outcomes. Canada to take its lumps and bruises Where is Canada in all this? First, there can't be a Canadian economic recovery without stabilization in the U.S. economy and global financial conditions. After all, this is not a made-in-Canada recession, but the country has certainly imported all the problems surrounding financial market uncertainty and a weakened export market. Second, like the U.S., TD Economics expects the fiscal package to have the intended effect, lifting the level of GDP by 1.1% by the end of 2010 from where it would have been otherwise. Perhaps the more interesting story for Canada is not what will happen on the real side of the economy, but rather on the nominal side (which does not take into account factors such as inflation). The lethal combination of a commodity price correction with a global recession was a key player behind a 13.5% annualized contraction in national income in the fourth quarter. With nominal GDP expected to decline in 2009 as a whole (-4.5%) for the first time on record, this will come to bear on employment, wages, capital investment, and government revenues as the year rolls forward. A big eye catcher among these components is that from peak-to-trough, TD Economics expects more than a half-million jobs to be shed by the end of 2009. That's more than the total job losses experienced during the painful early 1990s recession (-462,000), which is still fresh in the minds of many Canadians. However, the size of the labour market is bigger now than it was then, so the percentage decline will be slightly less steep (3.4% vs. 3.5%). Drummond has no doubt that 2009 will go down in the history books as one of the most difficult economic years for Canadians. TD Economics' Quarterly Economic Forecast can be found at For further information: Don Drummond, Chief Economist and S.V.P., (416) 982-2556; Beata Caranci, Director of Economic Forecasting, (416) 982-8067; Pour obtenir plus de renseignements, veuillez communiquer avec: Pascal Gauthier, Economiste, (416) 944-5730

See you in a bit

You are now leaving our website and entering a third-party website over which we have no control.

Continue to site Return to TD Stories

Neither TD Bank US Holding Company, nor its subsidiaries or affiliates, is responsible for the content of the third-party sites hyperlinked from this page, nor do they guarantee or endorse the information, recommendations, products or services offered on third party sites.

Third-party sites may have different Privacy and Security policies than TD Bank US Holding Company. You should review the Privacy and Security policies of any third-party website before you provide personal or confidential information.