TD Bank economists have tweaked their forecasts for the Canadian and U.S. economies, taking into account two factors: recent data and updated figures on fiscal stimulus.

In December, TD predicted that the Canadian economy would contract by 1.4% in 2009 and expand by 2.4% in 2010. It now notes that near-term economic data for Canada are tracking a worse-than-expected outcome. “The job market is deteriorating more broadly and rapidly, and the same can be said for the housing market. By extension, this has bled into consumer spending. Accounting for these developments resulted in a 0.5 percentage point downward revision to our 2009 real GDP growth estimate and a smaller 0.2 percentage point drag in 2010,” it says.

At the same time, the fiscal stimulus package put forth in the 2009 budget adds back 0.5 percentage points to real GDP growth in that year, completely offsetting the weakening to the base line projection. In 2010, the stimulus adds 0.6 percentage points to real GDP growth. All told, real GDP growth was bumped back up to -1.4% for 2009 and +2.8% for 2010, it says.

The U.S. economy was expected to contract by 2%, followed by a 2.7% rebound in 2010. But the U.S. government is proposing bigger fiscal stimulus figures than it had originally assumed, leading to a marginal increase in its base line GDP forecast for 2009, with a bigger lagged impact on 2010. In total, it says the fiscal stimulus package will add 0.7 percentage points to U.S. GDP growth in 2009 and 1.9 percentage points in 2010. That places the projections for real GDP growth in those years at -1.6% and +3.2%, respectively.

IE