Tuesday, January 12, 2010

Canada and US economies to grow slowly in 2010

In spite of the relatively modest growth forecasts for next year stock markets in both countries have staged a remarkable comeback from their March 2009 lows. Perhaps they will be due for a correction some time early this year. Most of the growth in profits has been through cutting back costs rather than through increased demand for goods. Soon the government will cut back stimulus money and begin trimming programs to try and bring deficits under control and this could very well stall the recovery.

Canada, U.S. GDP growth in 2010 to be 'tepid': forecast
CBC News
The economies of Canada and the United States will grow about half as much in 2010 as they did in previous recoveries, according to a new forecast released Wednesday.

A group of five prominent Canadian economists, speaking at the Toronto-based Economic Club of Canada, said Canada and the United States will see gross domestic product growth of between 2.5 to three per cent in 2010.

"Not particularly vigorous for the first year following a recession. We normally in Canada and the U.S. after a recession grow by [as much as] five per cent — so somewhat tepid," said Don Drummond, chief economist for TD Financial Group and one of the experts who developed the forecast.

Drummond and the other bank economists — Craig Wright of the Royal Bank of Canada, Scotiabank's Warren Jestin, CIBC's Avery Shenfeld and BMO's Sherry Cooper — presented their predictions to a business audience of approximately 1,200.

Coming out of the darkness
Both economies are recovering after a difficult year in which financial markets seized up, businesses cut jobs and consumers stopped buying, the economists noted.

The experts also said they do not expect American consumers, who are the driving forces of the economy, to begin shopping again with the same unbridled passion as in past years.

"Everybody's view was predicated on the view that U.S. households would resume spending but at a fairly moderate pace relative to previous years," Drummond said.

"Will they spend their brains out again? Maybe they'll go out and buy a lot of things and hence have stronger growth in the short term," he said.

An aging population — intent upon increasing retirement savings — and higher per-capita debt levels likely will place a ceiling on rising consumer spending, the economists noted.

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