TORONTO (Reuters) - The Canadian economy could see little or no growth in 2009 given the global plunge in commodity prices and weak U.S. demand for its exports, top economists from the country’s largest banks said on Wednesday.
They predicted Canadian interest rates, already at a 50-year low, could be slashed significantly in the coming months as the economy continues to shed thousands of jobs and unemployment rises.
“The first half of 2009 looks pretty terrible for Canada,” Don Drummond, chief economist at Toronto-Dominion Bank, said at an Economic Club of Canada event in Toronto.
Drummond’s comments came ahead of key data due on Friday that is expected to show the Canadian economy shed 22,000 jobs in December. That would follow a loss of 70,600 jobs in November.
Canada sends about 75 percent of its exports to the United States, leaving it extremely vulnerable to the growing economic crisis there.
“There’s a lot of bad news to get through over the next six months,” said Avery Shenfeld, senior economist at CIBC World Markets.
Data released late in December showed the economy shrank in October, paving the way for a recession that has now been widely predicted by economists and government officials.
Craig Wright, chief economist at Royal Bank of Canada, said the Canadian economy will see no growth in 2009.
The comments come less than a month after the Bank of Canada unexpectedly cut its key overnight rate by 75 basis points to 1.50 percent and said for the first time that the economy was entering a recession.
At a luncheon event presented by the Toronto Society of Financial Analysts, Merrill Lynch Chief Economist David Wolf said he expects the Bank of Canada to cut rates by an additional percentage point.
Wolf is calling for the Bank of Canada to slash its key rate by 50 basis points on January 20 and another 50 basis points on March 3, which would leave the overnight rate at 0.50 percent.
He said the central bank may have to mimic its U.S. counterpart in lowering rates to almost zero. The U.S. Federal Reserve cut its overnight borrowing costs in mid-December to a range between zero and 0.25 percent.
“The risk is that the bank is going to have to go further,” Wolf said. “They may even have to explore some of the nonconventional policy measures that the Fed has pursued over the last several months.”
Editing by Jeffrey Hodgson and Peter Galloway