Economic recovery will begin in the spring of 2002 in North America say TD Bank economists.

Don Drummond, senior vice president and chief economist at TD, noted that, “While both the U.S. and Canadian economies will return to positive growth by early 2002, it will take until the second half of the year before the recovery is firmly in place.”

Drummond explained that the timing and strength of the recovery depend on how the tug-of-war plays out between two negative shocks — the implosion of the high-tech-driven investment bubble a year ago and the events of September 11 — and the positive boost to growth from the tremendous amount of monetary stimulus that has already been put into place.

According to Drummond, “The most likely outcome is that the first two factors will continue to have the upper hand over the near term, which virtually guarantees a negative fourth quarter for 2001. The monetary and fiscal kick will start to pull more forcefully on the rope as we move into 2002, which should drag growth back into positive – albeit anaemic – territory.”

Drummond went on to say, “By the time the second half of 2002 rolls around, the negative factors will be defeated and the monetary and fiscal authorities will have won the battle, propelling growth back above the 3% threshold on both sides of the border.”

There are some risks associated with the forecast. An improvement in the health of the business sector is crucial to the recovery, however, “It is not unusual for business investment to take some time to gain ground after a recession has come to an end.” “While still significant, the downturn in investment on this side of the border has not been quite as precipitous as in the United States … , nor have capacity utilization rates dropped anywhere near U.S. levels.” Nevertheless, as in the United States, a slower-than-expected recovery in business investment constitutes a risk to the forecast.

Consumer confidence is the second wildcard. Over the next few months, the key influence on consumer confidence will be the labour market, specifically job losses. Drummond summed up the confidence issue by saying, “What is important is that consumers on both sides of the border manage to hold on long enough for the recovery in the business sector to start to take hold.”

Despite the risks to the outlook, Drummond remains optimistic. “The odds are that the monetary and fiscal stimulus will win out in the end, and we will see an economic recovery in 2002,” he concluded.