(March 28 – 10:20 ET) – The chorus of Canadian economy flatterers continue to sing out today. TD Bank economists are calling for economic growth of more than 4% this year. It will slip to a little more than 3% next year.
“The expansion in the Canadian economy will remain broadly-based in 2000-01, as consumers enjoy rising incomes, businesses post strong gains in profits, and governments offer tax cuts and boost spending in priority areas such as health care,” says Peter Drake, vice president and deputy chief economist at TD.
TD predicts that 400,000 new jobs will be created in 2000, with the unemployment rate falling to 6.2% by the end of 2001.
TD also expects the Bank of Canada to finally diverge from he U.S Federal Reserve Board on interest rates. “The Bank of Canada, which has matched the three most recent interest-rate hikes implemented by the U.S. Federal Reserve, will nudge interest rates up further in the first half of 2000 to ward off inflation,” says Drake. “We expect the Fed to raise short-term interest rates by a total of 50 basis points at its upcoming policy meetings in May and June, but we expect the Bank to raise rates only one more time, by 25 basis points in May.”
TD economists see downside risk though if the Fed doesn’t get the desired results and
accelerate rate momentum. “Although economic prospects are very bright for Canada, there is still a risk to the outlook – that the U.S. economy might not slow as we expect, and that inflation could heat up,” says Drake. “Under that scenario, the Fed may raise interest rates more sharply than we have forecast, and the Bank of Canada could follow suit to prevent a sell-off in the Canadian dollar.”
-IE Staff