-   TD Economics predicts deeper and more extended recessions on both
        sides of the border.
    -   U.S. economy to contract by 3.1% in 2009 and Canada to follow suit
        with a 2.4% retreat.
    -   Outlook for 2010 slashed in half, with slow recovery predicted.
    -   U.S. and Canadian economies expected to show modest growth of 1.4%
        and 1.3%, respectively, in 2010.
    -   Global economic outlook also cut to -1.6%, in 2009, the first
        contraction on record.

    TORONTO, March 12 /CNW/ - A report published today by TD Economics has
downgraded the U.S., Canadian and global economic outlook for 2009 and 2010
due to slow progress in improving global financial conditions and a
significant broadening in economic weakness across the global stage. Chief
Economist Don Drummond noted that "the near-term weakness appears more
pronounced, with tentacles reaching across the globe".
    The capitulation of the U.S. consumer at the end of 2008 was much sharper
than anticipated according to the report. This has been a key catalyst for
accelerating losses in global trade and distributing the economic shock around
the world. The recession in the U.S. economy is now expected to extend to the
third quarter, resulting in a contraction of 3.1% for 2009 as a whole. Canada
as an unfortunate bystander will see real GDP growth contract by 2.4%.
    A second element of the forecast has to do with the timing and strength
of an eventual economic recovery. With job losses expected to extend into
2010, TD Economics believes the risks in recent months argue that the recovery
will be shallower than originally perceived for 2010. The U.S. economy is
expected to expand by 1.4% in that year, while Canada will produce a
near-matching pace of 1.3%.
    There are five key pillars that form the TD Economics view. "We've got
big problems being matched with big plans, making for an uncertain and
volatile ride," notes Drummond. "If all five come to fruition quickly and
strongly, then the pace of economic recovery will be considerably stronger
than we are currently predicting. However, if some of the five ingredients are
not substantially realized in the next 3-6 months, we will consider
downgrading the outlook further."

    The five pillars to recovery:
    1.  The U.S. real estate market must stabilize in the next 3-6 months.
        Although most market attention is placed on the rate of decline in
        U.S. home prices, turning points in prices lag that of sales and
        inventories by several months. However, resumption in price growth
        would trigger completion of the cycle of housing-related write-offs,
        restoring the health of the financial industry.

    2.  Credit conditions must continue to improve. The U.S. is making
        slower-than-expected progress on restoring its financial health,
        which was a key risk to the original assumptions set out in the
        December and September QEF reports. Although short-term financing
        rates have receded dramatically in recent months, little progress has
        been made on medium-term financing rates. Government policy has also
        been slow to address the core problem of toxic assets on the balance
        sheets of financial institutions. Drummond said "there are still too
        many loose ends on the financial front, which is why our forecasts
        reflect a  longer recession in 2009 and a shallower recovery in
        2010."

    3.  The increased prevalence of systemic risk in the global financial
        system must diminish. The accelerated deterioration in the global
        economy has exacerbated some underlying financial fragilities. A
        substantial amount of loans from Western European banks to Eastern
        European borrowers have quickly soured, made worse by the sharp
        depreciations in many East European economies. This will be a drag on
        borrower and lender economies alike, thereby slowing the pace of
        economic recovery. TD Economics is presuming that attempts to
        stabilize the financial systems and economies of Central and Eastern
        Europe will avoid the worst case scenario of total meltdown, which
        would have dire knock on effects to creditors in Western Europe and
        even North America.

    4.  Restructuring of the auto sector must continue to make progress. If
        the Big 3 North American auto assemblers are allowed to fail
        outright, the economy would certainly be worse than currently
        projected. This view does not preclude these firms from seeking
        bankruptcy protection and restructuring, but does assume their
        operations continue in some, albeit diminished, form.

    5.  The U.S. fiscal stimulus package must be implemented swiftly and the
        economic boost needs to be in the ballpark of our current
        expectations. The fiscal stimulus is projected to lift the level of
        U.S. real GDP by 2.3% by the end of 2010. TD Economics employed
        relatively conservative assumptions, as it rests in the middle of the
        Congressional Budget Office (CBO) range of potential outcomes.

    Canada to take its lumps and bruises

    Where is Canada in all this? First, there can't be a Canadian economic
recovery without stabilization in the U.S. economy and global financial
conditions. After all, this is not a made-in-Canada recession, but the country
has certainly imported all the problems surrounding financial market
uncertainty and a weakened export market. Second, like the U.S., TD Economics
expects the fiscal package to have the intended effect, lifting the level of
GDP by 1.1% by the end of 2010 from where it would have been otherwise.
    Perhaps the more interesting story for Canada is not what will happen on
the real side of the economy, but rather on the nominal side (which does not
take into account factors such as inflation). The lethal combination of a
commodity price correction with a global recession was a key player behind a
13.5% annualized contraction in national income in the fourth quarter. With
nominal GDP expected to decline in 2009 as a whole (-4.5%) for the first time
on record, this will come to bear on employment, wages, capital investment,
and government revenues as the year rolls forward. A big eye catcher among
these components is that from peak-to-trough, TD Economics expects more than a
half-million jobs to be shed by the end of 2009. That's more than the total
job losses experienced during the painful early 1990s recession (-462,000),
which is still fresh in the minds of many Canadians. However, the size of the
labour market is bigger now than it was then, so the percentage decline will
be slightly less steep (3.4% vs. 3.5%). Drummond has no doubt that 2009 will
go down in the history books as one of the most difficult economic years for
Canadians.

    TD Economics' Quarterly Economic Forecast can be found at
www.td.com/economics

For further information: Don Drummond, Chief Economist and S.V.P., (416)
982-2556; Beata Caranci, Director of Economic Forecasting, (416) 982-8067;
Pour obtenir plus de renseignements, veuillez communiquer avec: Pascal
Gauthier, Economiste, (416) 944-5730