World economy to expand by 3.8%

TORONTO: TD Economics says the "Great Recession" has ended and that the world economy will expand by 3.8 per cent in 2010.

The recovery will likely be neither quick nor easy and there can be no certainty regarding the course it will take. "The global economy and recovery remain fraught with risk,” notes TD's Senior Vice President and Chief Economist, Don Drummond.

TD's report states the real signal that the world was emerging from recession came when North America posted growth in the third quarter, following rebounds in Asia, France, and Germany in the second quarter. Although Canada's economy grew by the slimmest of margins in the third quarter, the recovery will become much more evident when growth of around four per cent is recorded for the fourth quarter.

While the recovery is underway, the report suggests that it will not develop the "head of stream” typical of past recoveries.

A number of factors are responsible for this slow recovery, particularly in the US from protracted employment losses, deep reductions in household income and wealth, the destruction of credit flow, and risk aversion among financial institutions. In taking these factors into account, the TD Economics report forecasts growth for the US at 2.7 per cent in 2010. Canada is also forecast to grow at 2.7 per cent next year.

These projections are predicated on a number of conditions unfolding, including continuing, albeit slow, progress in the US housing market and the coincidental rebuilding of household balance sheets, and thus savings, within developed economies.

Drummond says risks that could impede recovery include the end of global monetary styimulus which may further slow down or reverse any progress.

"Fortunately, there is enough slack in the global economy to allow central bankers to take careful corrective action without undermining the recovery process," he said in a release.

Another major risk lies in the steps fiscal authorities take to address soaring deficits and debt. They will need to avoid killing off either their domestic economies or impeding the global recovery. The TD report is based on the assumption that financial regulators will make the right decisions.

"In many ways, successfully negotiating economic recovery is a bit like a Goldilocks scenario,” says Drummond. "It can't be too hot or too cold—it's got to be just right...Analysts and investors will need to be fleet of foot to adjust to evolving circumstances and risks.”