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Bad start to year to limit Canadian growth to 2.2 per cent this year: TD

OTTAWA - Canada's economy will be all about the finish this year, and the TD Bank (TSX:TD) says it will be worth the wait.

The chartered bank issued a revived forecast for the economy Monday noting that the slow start, particularly from weather-related headwinds from the U.S., means that growth in Canadian gross domestic product will be held to a modest 2.2 per cent this year.

That's one-tenth percentage point lower than the bank's previous estimate and also south of the Bank of Canada's most recent outlook, although the central bank will issue an updated outlook next month.

Meanwhile, despite the downward revision in this year's forecast, the bank's prediction for next year "has been raised a touch higher to 2.6 per cent," TD chief economist Craig Alexander and economists Beata Caranci and Andrew Labelle wrote in a report.

"Continued low interest rates next year will support a fatigued domestic sector, while a lower dollar and a stronger U.S. economy will lead to an uptick in external demand."

The big change in the forecast is the downgrading of U.S. growth from 2.7 per cent to 2.2 this year, attributable to the brutal winter and other temporary factors that shaved one per cent off U.S. GDP at the start of the year.

Canada's economy tends to go in lockstep with the U.S. because about 70 per cent of all Canadian exports head south, so a loss of demand in America results in fewer external sales and less activity in the key export industries ranging from auto production to oil sales.

Fortunately, say the authors, the "die is already cast" for a second-quarter rebound in the U.S., which should set the American economy on the path to about three per cent growth for the rest of the year and 3.1 per cent in 2015.

In fact, the U.S. is poised to lead the G7 economies in growth in 2015, taking Canada's economy along for the ride.

Conditions are not so great in the rest of the world, even if they are improving, the bank says.

The eurozone will barely eke out one per cent growth in 2014, although that's better than the minus 0.4 retreat of 2013.

And China remains stuck in what for it is considered a moderate pace of growth of 7.4 per cent this year and 7.0 per cent in 2015 after running at about 10 per cent prior to the recession. China represents almost 15 per cent of the global economy.

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