Economy seen growing, but global risks loom

Thu Jan 5, 2012 3:21pm EST
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By Jennifer Kwan

TORONTO (Reuters) - Canada will likely see a second year of modest economic growth in 2012, but is highly vulnerable to turmoil in Europe, the United States and elsewhere, some of Canada's top economists predicted on Thursday.

The country, which fared better than most major Western economies in the global financial crisis, could also lag U.S. growth for the first time since the recession.

But economists with Canada's biggest banks warned forecasting is tougher than usual given uneven global growth, the impact of ultra-low interest rates and foreign political uncertainty.

"The crystal balls are unbelievably cracked and cloudy and the reason is that there are big risks out there, and the big risks all have a political dimension to them," said Craig Alexander, chief economist at Toronto-Dominion Bank.

These risks include Europe's ability to control its debt troubles, as well as geopolitical tensions and the impact on oil prices, economists said.

"We are going to continue to have a two-speed world economy with strong growth in the emerging markets, but slowing growth in the emerging markets," said Alexander.

"In the advanced world, we're going to see relatively modest growth at best and, at the end of the day, we're looking at a recession in Europe. The question is: is it going to be mild or significant?"

In the case of North America economic growth will be modest to moderate, he added.   Continued...