TD sees 'barn-burner' economic growth in Q3

The Canadian economy is set for a 'barn-burner' third quarter, economists at TD Bank say, but they also caution that trend won't continue for long.

Following a second-quarter contraction of 1.6 per cent due to weak exports, slow consumer spending and the effects of the Fort McMurray wildfire, TD said manufacturing activity picked up, oilsands output rebounded, and exports grew in July. 

TD said growth for the June-September period is set to grow at a pace of about three per cent.

"However, Canadians shouldn't be misled into thinking that this momentum will hold," TD said. "Once one-off factors roll off, growth will drift back to a more modest 1.7 per cent to 1.8 per cent pace through 2017 and 2018."

Temporary surge

Even with healthy third quarter growth for the economy, 2016 as a whole is expected to grow by only a "meagre" 1.1 per cent pace, the bank said.

That tepid growth means job gains are expected to be modest. TD sees the unemployment rate remaining near 6.9 per cent through most of 2017, and then improving slightly to 6.7 per cent by the end of 2018.

TD said it sees little reason for the Bank of Canada to alter its stance on interest through the end of 2018.

"The hurdle on additional interest rate cuts is high, but a cut is still more likely than a hike at this point," the bank said.

TD's release follows a speech earlier this week by Bank of Canada governor Stephen Poloz in which he warned Canadians to be prepared for slow economic growth in a low-interest rate environment.