Tepid growth Canada's new normal: TD
Last Updated: Tuesday, November 10, 2009 | 11:13 PM ET
CBC News
A smokestack puffs outside a factory in Hamilton. A new report by TD Bank forecasts tepid growth for the Canadian economy until 2019. (Canadian Press)The Canadian economy's growth potential will be about half of its historical norm for the next several years, a report by TD Economics suggests.
With the world and domestic economies showing tentative signs of recovery, attention has moved toward what sort of growth might be expected.
But rather than a quick bounce-back, the bank expects tepid growth and a prolonged period of muted expansion until roughly 2019.
"It is critical to recognize that things will not simply return to how they were," TD economist Grant Bishop says in the report published Tuesday.
The bank forecasts a slump in Canada’s average annual potential economic growth to 1.6 per cent until 2012. Even when the economy fully recovers from the recession that began gripping Canada last year, TD expects annual growth will average 2.1 per cent into 2019.
Canada's economy has grown at an average annual rate of roughly three per cent for the past two decades, the bank says.
Potential output represents the level of production that an economy can sustain without spiking inflation. The bank describes potential growth as a “speed limit” for an economy’s long-run growth.
'New normal'
Previous periods of robust expansion have been buoyed by expanding sales of Canadian technology, commodities, and finished goods.
But Canada's growth potential now hinges on changes in the labour force and in productivity, the bank says, not necessarily overseas markets.
That could be problematic because over the long haul, Canada's aging population will slow labour force growth, and economic growth will increasingly rely on productivity gains, the report says.
Investors must increasingly look abroad for better returns, the bank advises, but high-growth emerging markets will be volatile and more risky.
And the bank has serious concerns about ballooning government spending.
"Current federal and provincial deficits must be addressed," the report says. "Curtailing growth in spending is essential, but, even if governments see no other option than a heightened tax share, they must resist pressure to retreat from those tax reforms that encourage productivity improving investments."
