WASHINGTON—A double dip recession for Canada’s largest trading partner is not in the cards this year, but neither is any real improvement in the country’s economy.
That’s the picture that emerges from an Associated Press survey of leading economists who have grown more pessimistic in recent weeks. They say high unemployment and weak consumer spending will hold back the U.S. economy into 2012.
Their gloominess comes at a time when Europe’s debt crisis threatens to infect the global financial system.
Each day that the stock market sinks “puts another nail in the coffin of the recovery,” says Beth Ann Bovino, senior economist at Standard & Poor’s.
Sinking stock prices frighten consumers and businesses, which spend and invest less. Investors respond to lower corporate sales by selling stocks, worsening the market declines.
“I had been saying it was a half-speed recovery; now, it’s a quarter-speed recovery,” Bovino says.
She is among 43 private, corporate and academic economists surveyed this month by the AP. They are more downbeat than when surveyed eight weeks ago.
Some of their conclusions:
- The likelihood of a recession within the next year is 26 per cent. In June, they’d pegged the likelihood at 15 per cent.
- The economy will inch ahead at an annual rate of 2 per cent in the July-September quarter and 2.2 per cent from October through December. Though stronger than the growth for the first half of 2011, that isn’t enough to lower the unemployment rate much, if at all. And next year will barely be stronger.
- The unemployment rate will end this year at 9 per cent and 2012 at 8.5 per cent. Those rates are slightly less than July’s 9.1 per cent.
- There will be some economic growth, job creation, and rise in consumer spending the next year. But the gains they expect are so slight that many won’t notice.
Canada’s Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney also said last week that the U.S. and Europe would not slip back into recession.
The two were called to testify before a House of Commons committee after two weeks of frenzied trading on stock markets.
The central bank had initially forecast the Canadian economy would grow 1.5 per cent in the second quarter, but Carney said they now expect minimal growth or even a slight contraction in the economy due to the global slowdown.
CIBC World Markets senior economist Peter Buchanan said those were optimistic forecasts.
“Clearly there are more pessimistic views out there,” he said.