(March 22 – 10:10 ET) – Economists at TD Bank predict that interest rats will drop another 50 basis points this year, but an economic recovery isn’t likely until the end of the year.

TD’s economists predict that the U.S. and Canada will both lower interest rates by another 50 bps in the second quarter, “but the cuts won’t reverse the sharp slowdown in economic growth now underway until late 2001”.

TD sees U.S. growth of just 1.3% this year, but jumping to 3.4% in 2002. Canada should slow to 2.2% growth this year, with the unemployment rate rising toward 7.5% in mid-2001.

TD says Canada’s export-oriented manufacturing sector has been the worst hit, and is now flirting with recession. “All in all, the Canadian economy is likely to see growth cut in half this year, dragged down by the slowing U.S. economy, which we now expect will scratch out growth of only 1.3% in 2001,” says Don Drummond, senior vice president and chief economist at TD.

“As recently as six months ago, there was widespread talk of a new economic order, where technological innovation would boost productivity and output growth in perpetuity without sparking inflation. Today, it is clear that the business cycle is alive and not so well, with even the ‘new economy’ industries falling prey to that most classic symptom of the business cycle, excess inventories,” Drummond adds.

TD says the current U.S. slowdown is expected to last longer than the 1994-1995 cycle, but it is not expected to be as severe as the 1990-1991 recession. “Sliding equity markets and a steady deterioration in the outlook for corporate profits will put a further dent in consumer and business confidence in the coming months,” says Drummond. “However, aggressive easing by the Fed, together with the prospect for generous tax relief this summer — possibly made retroactive to January — should help spur a rebound in the U.S. economy in the final quarter of the year.”

TD says the economy will certainly slow in the first three quarters of the year, but it sees tax relief and rate cuts cushioning the blow. The loonie is not expected to get any relief from this though.