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Closer to the Edge

Canada's economy isn't immune to the turmoil that is rocking global markets. But how bad could it get?

Sep 13, 2011

by Max Fawcett

by Max Fawcett, Managing Editor

Craig Alexander, the chief economist for TD Bank Group, appeared on BNN this morning with a sobering message for investors and business executives alike: watch out below. The bank trimmed its growth forecast for Canada both in 2011 and 2012 by 0.5 per cent, while its worst-case scenario calls for negative growth in 2012 – a recession. “It’s a story about the external environment being much weaker than anticipated,” Alexander said. “Canada’s not an island.”

Part of the problem is the ever-changing nature of the economic data. The August GDP revisions by the U.S. Bureau of Economic Analysis revealed both that the recent recession was much deeper than previously thought – nine quarters of recession rather than six – and that the recovery has been much more anemic than is widely understood. With those new figures in mind, it becomes easy to see just how close the United States is to another recession. Things aren’t any better in Europe, either. Alexander forecasts, at a minimum, a technical recession in the Eurozone in 2011 and growth at less than 1 per cent in 2012.

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What do the next six months look like? Alexander pegs the prospect of the United States slipping back into recession at 40 per cent, but he notes that “the crystal balls unbelievably cracked and cloudy right now.” The recent economic data wasn’t as bad as the market turmoil in August would lead one to believe, but that market turmoil may adversely impact future data, creating a vicious circle of negative sentiment and worsening data. Hold on to your hats, folks.

 

 

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