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Bank economists predict stronger fall, but listless growth in 2016

Construction workers work on a new home at a job site in Oakville, Ont. THE CANADIAN PRESS

Bank economists expect anemic growth in the Canadian economy this year, after a second quarter hammered by falling exports and consumer spending, and the devastating Alberta wildfires.

A report published last week by TD Economics predict healthier growth in the third quarter, driven by healthier exports and the Canada Child Benefit

When it all balances out, though, TD predicts a feeble 1.1 per cent growth rate for the year. Next year, however, should show some improvement as federal fiscal stimulus kicks in, but in the nearer term exports to the United States are constrained by uncertainty there about the presidential campaign.

WATCH BELOW: Alan Carter has a look at why a terrible Q2 contains hope for 2016 in Canada.

Click to play video: 'Canadian economy shrinks, but experts see good news' Canadian economy shrinks, but experts see good news
Canadian economy shrinks, but experts see good news – Aug 31, 2016

“Modest growth will translate into modest job gains,” the report warns, with unemployment expected to stay above 6 per cent through the end of 2018.

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Unemployment hit 7 per cent in August, but some of the increase may be related to unemployed workers trying to return to the work force.

A BMO Capital Markets report published Friday was also bearish, predicting 2016 growth at around 1 per cent.

“The Canadian economy is still just plodding along,” chief economist Douglas Porter lamented.

Porter also hoped for some stimulus in the third quarter from the Canada Child Benefit. Payments started on July 1, not in time to affect Q2.

“As that money continues to flow into family bank accounts, it should provide further support to retail activity in the second half of the year.”

WATCH BELOW:  Canada’s economy marked one of its worst one-month performances in seven years, with the real gross domestic product dropping 0.6 per cent in May. Mike Drolet explains how the Fort McMurray wildfires continue to have an impact on the economy.

Click to play video: 'How the Fort McMurray wildfire hit the Canadian economy' How the Fort McMurray wildfire hit the Canadian economy
How the Fort McMurray wildfire hit the Canadian economy – Jul 29, 2016

“Canada’s economy is rebounding nicely after a difficult second quarter,” wrote National Bank senior economist Krishen Rangasamy, who also predicted 2016 growth in the 1 per cent range.

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READ MORE: Can Justin Trudeau’s high approval numbers survive Canada’s lagging economy?

“Unless the upcoming fiscal stimulus from the federal government is targeted effectively as to lift the economy’s potential, Canada will be stuck in low-growth mode,” he wrote.

Rangasamy pointed to weak job creation as a liability for the economy.

Vancouver, with (until recently) a booming real estate market, is a bright spot for employment, but Rangasamy predicts a correction: “We would not be surprised to see a peak-to-trough decline of over 10 per cent for Vancouver’s average resale home price.”

(A separate BMO Capital Markets report by senior economist Benjamin Reitzes put Canada’s woes in perspective, pointing out that we’re doing well compared to other industrialized countries: “an oasis of stability” politically, solid credit ratings, moderate public debt compared to some other countries and close ties to the relatively healthy U.S. economy.)

Record low interest rates have stimulated real estate markets (some would say too much) and enabled debt-fuelled consumer spending (some would say too high).

READ MORE: Record debt: Canadian households sink deeper and deeper into the red

But the Bank of Canada has signalled that low rates are here to stay for the foreseeable future.

The bank’s benchmark interest rate has remained at a low level of 0.5 per cent for more than a year. 

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In a speech last week, Bank of Canada governor Stephen Poloz acknowledged that low rates were pinching budgets for retirees, who he acknowledgedare unhappy because they have saved their whole lives and are getting very little income from those savings today.

Poloz offered little in the way of comfort.

READ MORE: Raising concerns about economy, Bank of Canada keeps key interest rate unchanged at 0.5%

“That may mean some combination of putting aside more funds, working a little longer than planned or changing the mix of investments. There are no easy answers, particularly for some who have already retired.

Poloz is scheduled to speak later Monday in Bellingham, Wash.

-With files from the Canadian Press

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