TORONTO, Jan. 18 /CNW/ - TORONTO -- Despite a chilly North American
winter, U.S. credit markets may be seeing an early spring thaw. That
spells good news for Canada, whose economic prospects are so
intricately tied to those of its southern neighbour.
"What we are beginning to see in terms of credit growth in the United
States suggests that financial markets may well be underestimating the
strength of the U.S. economy," said TD Chief Economist, Craig
Alexander. "Stronger-than-expected growth in the U.S. would be a boon
to the Canadian economy," he adds.
In a report released today by TD Economics, Alexander highlights a
number of positive developments in U.S. credit markets over recent
months. According to an October survey by the Federal Reserve, U.S.
banks are reporting a greater willingness to lend to consumers today
than at any point since the recession. This is due in large part to
improvements in credit quality: delinquency rates on consumer credit
and commercial and industrial loans have fallen close to a percentage
point from peak levels over the last few quarters. Banks' renewed
appetite for lending has translated into increased activity in the
market for unsecured consumer credit - such as credit cards and student
loans -which unlike other forms of credit such as mortgage loans, are
backed only by the lender's faith in the borrower's ability to repay.
This market seized up during the recession, with unsecured lending
falling 7.4% from its peak reached in 2008. But the data suggests that
unsecured lending is growing once again. Adjusted for charge-offs - a
one-time hit that banks take on delinquent accounts that they deem
unrecoverable - total consumer credit is up over 3.0% from a year ago.
The potential for improving credit conditions, in combination with
fiscal stimulus to feed into a more robust U.S. recovery was not lost
on the Bank of Canada. In their interest rate announcement this
morning, the Bank noted that U.S. economic growth had picked up more
than previously anticipated. Further details of the Bank's global
growth forecasts will be released Wednesday. An upgrade to the U.S.
forecast from their current forecast of 2.3% is likely.
For their part, TD Economics is projecting U.S. growth of slightly above
3.0% over the course of 2011 and 2012. But, this estimate is
conservative, as it assumes that access to credit improves gradually
over the coming year. "A sharper-than-expected increase in the
availability of credit and credit quality could unlock pent-up demand
by U.S. consumers and businesses and lead to growth that exceeds
expectations," said Alexander.
The good news story in the U.S. means that Canada's strong economic
recovery may get stronger yet. Canada's economy is heavily oriented
toward trade, with exports comprising 30% of the country's gross
domestic product. Exports to the United States, Canada's largest
trading partner, make up the lion's share of that number. According to
Alexander, strength in U.S. demand is fundamental for the prospects of
many Canadian industries, - autos, forestry, energy, and manufacturing
-, all of which tend to be export-oriented. "As Canadians we don't
always like to admit it," he said, "but the reality is that in terms of
economic activity, Canada is still tied in some ways to the United
States. Positive developments south of the border will inevitably be
TD Economics forecasts Canada's economy will grow at an annual rate
slightly above 2.5% in 2011 and 2012, with an upside risk from a
stronger U.S. economy.
SOURCE TD Economics
For further information:
Senior Vice President & Chief Economist
TD Bank Group
TD Bank Group