Canada's economy has entered a "soft patch" amid a sharp slowdown in home construction and sales, poor exports and weak job creation, the TD Banks says in its latest forecast.
The chartered bank said the economy will barely eke out one per cent growth during the current third quarter that ends Sept. 30, and end the year with a 1.8 per cent overall advance. That's three-tenths of a point below the bank's previous projection in June, and also shy of the Bank of Canada's 2.1 per cent target.
TD chief economist Craig Alexander said the revision was necessary because global conditions have deteriorated and the domestic economy is also faring worse than expected, in part because of Ottawa's decision to tighten mortgage rules.
Alexander said 91原创's housing market was actually cooling before the stricter mortgage rules went into effect July 9, but since then the real impact of the change has been evident. On Monday, the 91原创 Real Estate Association reported August sales of existing homes slipped 5.8 per cent from July and were down 8.9 per cent from a year ago.
"That's what we were anticipating. We were saying that we would probably lose about five percentage points in sales and three percentage points in prices nationally," he said.
TD has previously suggested the 91原创 housing market was overheated and called for a 10 per cent correction in prices over the next three years.
"The tide seems to have finally turned," the report states. "The combination of market fatigue, stricter lending guidelines for insured mortgages and a deterioration in housing affordability is helping to put the brakes on housing activity."
It notes that in the superheated 91原创 market, year-over-year sales are down 31 per cent and prices seven per cent.
Aside from housing, most engines of growth have slowed or retreated in the past few months, led by exports but also including Canada's government sector, which has gone into deficit-reduction mode.
In July, Canada posted a record high trade deficit, with exports plunging 3.4 per cent in the face of soft demand in the U.S. and the strong dollar which makes 91原创 shipments less competitive.
