Article content continued

“In contrast, economic activity has disappointed in the U.S., U.K. and Canada. The setback in the U.S. and improvement in the euro area has challenged the narrative of central bank divergence.”

TD expects Canada’s gross domestic product to advance 1.6 per cent this year, after growth of 2.5 per cent in 2014. Much of that slowdown can be blamed on the plunge in oil prices and severe winter that cause GDP to shrink 0.7 per cent in the first quarter.

“External developments have conspired against Canada’s economy so far this year, as soft U.S. demand to start 2015 delivered a powerful blow to an economy already reeling from the sharp decline in oil prices,” TD said.

But “the worst is likely behind us.” The bank is projecting 2.3 per cent growth in 2016.

“Although the impact of lower oil prices on corporate profits and business investment are forecast to persist in the near term, the anticipated boost to exports from a lower Canadian dollar and resurgent U.S. economy should pave the way to better growth numbers.”

The Bank of Canada, which cut its trendsetting interest rate to 0.75 per cent in January after keeping it at one per cent since mid-2010, is relying on the same positive elements as TD to get growth back on track.

After what bank governor Stephen Poloz admitted was a “disastrous” first quarter, policymakers had forecast an increase of just 1.9 per cent this year, but with growth picking up in 2016 to 2.5 per cent. Poloz will update the bank’s forecasts on July 15, when it announces its next interest rate decision and releases the central bank’s quarterly Monetary Policy Report.