Economy underperforming

OTTAWA — Canada’s economy will underperform even moderate expectations in the next two years, TD Bank economists predicted Wednesday, adding that recent tightening of mortgage and credit rules is contributing to the slowdown.

OTTAWA — Canada’s economy will underperform even moderate expectations in the next two years, TD Bank economists predicted Wednesday, adding that recent tightening of mortgage and credit rules is contributing to the slowdown.

In a new forecast, the TD Bank now expects growth in Canada this year to average 2.1 per cent, shaving a tenth of a point from its March outlook. And it expects two per cent growth in 2013, down four-tenths of a point from the earlier forecast.

That is still enough to generate modest job creation and TD says Canada’s national unemployment rate should decline slightly to 7.1 per cent in 2013 from the current rate of 7.3 per cent.

TD is the latest of a list of forecasting groups to officially or unofficially downgrade their outlook for the economy, with some — particularly Capital Economics — coming in even weaker.

The Bank of Canada is expected to follow suit at its next policy announcement in mid-July and write down a call for 2.4 per cent growth in both 2012 and 2013.

TD Bank chief economist Craig Alexander said conditions have deteriorated through much of the world in the past few months.

Europe’s problems with government debts in countries that use the euro currency have resurfaced, while China and the U.S. are both underperforming expectations.

Europe remains by far risk No. 1, he said.

His expects European leaders will stare the abyss squarely in the face and come up with the policies needed to avert a disaster, but he warns the situation will be dire if they don’t.

“In the case of Europe, they are toying with the possibility of a global financial catastrophe,” he said. “The good news is that the politicians realize this, so it makes it more likely they will do what is necessary.”

Alexander wouldn’t put a number on the odds of another economic slump in Canada because all the risks depend on political decisions in Europe, United States and China “and I have no way of calculating those.”

“If I were to make a guess, I’d say it is one in four,” he added.

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