No recession in Canada, bank economists say
Last Updated: Wednesday, January 9, 2008 | 1:47 PM ET
CBC News
"Canada's economic growth will slow down this year, but will avoid a recession, top economists at Canada's biggest banks agreed Wednesday.
TD Bank chief economist Don Drummond, speaking at a forum at the Economic Club of Toronto, is forecasting GDP growth of 1.9 per cent in Canada this year, while Sherry Cooper of BMO Capital Markets is calling for 2.2 per cent - the same as the Bank of Canada predicted in its last economic outlook in October.
The five economists don't see a recession in the U.S. either, although some say it will be close.
"We sure are not far from it and it will feel like a recession," said Cooper, chief economist at BMO, calling the decline in the U.S. housing market "without precedent."
Merrill Lynch Canada said its own outlook calls for the Canadian economy to grow by just 1.7 per cent this year.
Merrill Lynch Canada economist David Wolf is predicting the Bank of Canada will slash its key lending rate to just three per cent this year - 1.25 percentage points below where it is now.
The central bank is widely expected to cut its overnight lending rate by a quarter of a percentage point at its next-policy meeting on Jan. 22.
Meanwhile, another major U.S. investment bank is forecasting that a U.S. recession is likely this year.
"The recent data suggest that the U.S. economy is falling into recession," Goldman Sachs economists said in a research note Wednesday. But they say the recession will be "relatively mild by historical standards" and should last two or three quarters.
Goldman Sachs said the U.S. Federal Reserve would end up slashing its key overnight lending rate by 1.75 percentage points to 2.5 per cent.
A day earlier, a Merrill Lynch report said the U.S. economy was already in recession.
But most economists are still leaning against the possibility of a U.S. recession, according to a survey by Bloomberg. The news agency polled 47 economists and found only five said the U.S. economy would contract in the next year."
With so much turmoil in the U.S. housing market it would appear that Canadians should be expecting some sort of a similar adjustment. The reality is that the Canadian economy has historically mimicked what the U.S. economy has done in the past. Consider how many billions of dollars that U.S. financial institutions lent out in sub-prime mortgages and that is a major factor in why the Canadian housing sector has not followed suit to the US housing crisis. What this means in my opinion is Canada is able to stand on its own two feet for a change and perhaps be a little more independent rather than completely dependent on U.S. market conditions. Regardless, it will be very interesting to see what The Bank of Canada does with its prime lending rate. Only time will tell how insulated Canada is from a possible U.S. recession looming on the horizon.
Sincerely,
Jason Neumann