TD Economics has downgraded its forecasts for the United States and Canada for 2009 and 2010 due to slow progress in improving global financial conditions and a significant broadening in economic weakness across the global stage.

“The near-term weakness appears more pronounced, with tentacles reaching across the globe,” says TD chief economist Don Drummond.

The retrenchment by U.S. consumers at the end of 2008 was much sharper than anticipated, according to the report, 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%.

With job losses expected to extend into next year, TD Economics has slashed its 2010 outlook in half, with slow recovery predicted.

The U.S. economy is expected to expand by 1.4% in 2010, while Canada will produce a near-matching pace of 1.3%.

Drummond outlines five factors that could lead to a speedier recovery. “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 three to six months, we will consider downgrading the outlook further.”

According to TD Economics, the five pillars to recovery are:

1. The U.S. real estate market must stabilize in the next 3-6 months.

2. Credit conditions must continue to improve.

3. The increased prevalence of systemic risk in the global financial system must diminish.

4. Restructuring of the auto sector must continue to make progress.

5. The U.S. fiscal stimulus package must be implemented swiftly and the economic boost needs to be in the ballpark of TD’s 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 says there can’t be a Canadian economic recovery without stabilization in the U.S. economy and global financial
conditions.

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.

IE