Eric Beauchesne
Sun
Fasten your seatbelts: the Canadian and U.S. economies are in for some ups and downs, but aren’t about to crash, according to a new forecast Thursday.
The two economies, which have enjoyed surprisingly strong growth through most of 2005, have weakened this quarter but thanks to a surge in consumer spending will rebound early next year before being dragged back down again later in 2006 by higher interest rates, the TD bank forecast.
However, both economies will avoid a hard landing, and will rebound in 2007, it predicted.
TD’s warning that Canadian growth will slow to an annual pace of 2.6 per cent this quarter from the robust 3.6 per cent posted in the third quarter came amid a retreat in the value of the dollar to below 86.5 cents US from a 14-year intraday high of 87.5 cents US earlier this week. The Canadian dollar closed North American trading Thursday at 86.22 cents US, down 0.60 of a cent from Wednesday’s close.
The TD forecast was also made on the same day some banks raised mortgage rates and more evidence was revealed of continued strength in housing markets.
Home sales in Canada’s major urban markets rose 1.2 per cent last month to 28,980, the sixth-highest level on record, leaving the resale housing market on track to post its best year ever, the Canadian Real Estate Association said.
TD sees overall economic growth rebounding to a 3.3 per cent annual pace in the first quarter of 2006, well above the 2.8 per cent the Bank of Canada considers its non-inflationary speed limit. As a result there will be further rate increases that will gradually slow growth to 2.3 per cent by year-end. The bank will reduce rates and the expansion will steadily pick up steam to reach three per cent by the end of 2007.
“Sluggishness on the consumer front in September and October sets the stage for a weaker performance by both economies in the fourth quarter of this year, but growth should rebound in early 2006,” it said, predicting the Bank of Canada and U.S. Federal Reserve will respond by raising rates further.
© The Vancouver Sun 2005