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TD predicts better Canadian economy in 2012

Published by Steve Coleman on March 20, 2012

Good things happening in other parts of the world have prompted TD Economics to predict not-so-bad things for the Canadian economy this year.

The bank added 0.5 per cent to its real GDP growth forecast on March 19, estimating the economy will grow 2.2 per cent in 2012. It's the first time TD has revised its quarterly GDP forecast in a year.

While the Canadian economy is expected to grow, predictions say homeowners will dig themselves into a deeper hole before interest rates start rising some time in 2013.

Canadian households currently have a new average debt of 151 per cent of income. That's expected to increase to 160 per cent before interest rates put a cap on consumer spending.

Businesses, however, are on a solid financial footing, for the most part.

"Businesses have every reason to invest," said TD's Chief Economist Craig Alexander. "Balance sheets are in great shape, firms have accumulated considerable cash, interest rates are low and government policy has become very favourable - such as lower corporate tax rates and accelerated depreciation allowances."

Better news in the US will help Canada, too, the bank predicts. There should be strong demand for machinery and a growing number of Americans are looking to replace worn-out cars and trucks.

While it may mean good things for manufacturers, Canada's overall unemployment rate is expected to hover between seven and 7.5 per cent over the next year. A large part of that is due to decisions at all levels of government to try and reduce spending.

A lot of those program cuts will include job losses.

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