OTTAWA — The Canadian economy ground to a halt in the second quarter and could slip into recession if the United States weakens more than expected, TD Bank said Wednesday.
TD chief economist Craig Alexander said the bank expects the U.S. economy to narrowly avoid a recession in the coming quarters, but if the forecast is wrong that could spell trouble for Canada.
“I’m sorry, but Canada is just along for the ride. If the U.S. economy slumps, then the Canadian economy will experience economic weakness,” he said.
“One would hope that there would be some outperformance by the Canadian economy, but it can’t be guaranteed.
Alexander noted that consumers held up remarkably well during the last recession, but that may not be the case a second time as many are saddled with debt.
In its economic update Wednesday, TD Bank estimated zero growth for Canada in the second quarter which ended June 30, but noted that there’s a reasonable chance the economy actually shrank in the spring quarter.
Economists define a recession as two consecutive quarters in which real gross domestic product shrinks.
Last week, Bank of Canada governor Mark Carney acknowledged the Canadian economy was growing at a slower pace than the central bank had expected earlier this year, but noted that he did not expect a return to recession here or in the United States.
Carney said the Bank of Canada continues to expect that growth will accelerate in the second half of the year, led by business investment and household spending.
However, the U.S. is being squeezed by a troubled housing market, weak consumer and business confidence and worries about government debt.
A wave of public sector layoffs in many cash-strapped states and corporate reluctance to hire new workers has contributed to a U.S. jobless rate of more than nine per cent, about two percentage points higher than in Canada.
The U.S. Federal Reserve has said it will keep interest rates at exceptionally low levels for another two years to help spur growth.
Canada last slipped into recession in 2008-2009 after the Wall Street financial crisis sparked a global credit crunch that battered economies around the world and led to a huge restructuring in the North American auto sector, with the loss of tens of thousands of jobs.
Statistics Canada has said that the recession in Canada lasted from the fourth quarter of 2008 to the second quarter of 2009, but was less severe and shorter than in other G7 countries.
Between the third quarter of 2008 and the third quarter of 2009, Canada’s real GDP fell 3.3 per cent, compared with 3.7 per cent in the United States and bigger declines in Europe and Japan.
TD’s new economic outlook calls for the Canadian economy to grow 2.3 per cent for 2011, down from a June forecast of 2.8 per cent. TD also cut its expectations for 2012 to growth of two per cent compared with an previous estimate of 2.5 per cent.
The report came as the Conference Board of Canada said consumer confidence slipped 6.6 points to 74.7 in August, its lowest level since July 2009.
The Conference Board’s Pedro Antunes said Wednesday it was the fourth consecutive monthly decline, but noted it was the first really substantial month-to-month drop.
“Negativity towards future job creation and an unwillingness to make a major purchase were the primary signs of this waning consumer confidence,” Antunes said.
The survey found pessimism was higher on answers to questions about current and future household finances.
It also suggested consumers were at their most pessimistic since April 2009 about whether it is a good or a bad time to make a major purchase.
The survey was done between Aug. 4 and Aug. 14, a volatile period for financial markets that saw daily triple-digit swings and debt-rating agency Standard & Poor’s downgrade the credit rating of the United States.