Under this scenario, the CIBC says Canadians will likely be able to take advantage of historically low interest rates into 2014.
But the Bank of Canada need not be overly worried about households continuing to pile on debt as a result of generous loan conditions, it added to its latest economic report released Wednesday.
"After gorging at the table of plenty for years, Canadian consumer appetites may already be satiated," CIBC economists write in their report, noting that credit growth continues to slow even with today's low interest rates.
The two forecasts — from CIBC and Capital Economics — both project the Canadian economy will register the lowest annual growth rates since the recession in the next two years. CIBC says growth will average 2.1 per cent in both 2012 and 2013, whereas Capital Economics expects an even slower pace, at 2.0 per cent in 2012 and 1.5 per cent in 2013.
"This is not a good recovery," said economist Benjamin Tal of CIBC. "Normally you would expect growth rates of four and five per cent in a recovery, but I don't see anything that will lift the economy in any significant way."
Tal notes that since the recovery began in the fall of 2009, and to some extent during the recession, the economy was sustained by a "couple of tricks" — super-low interest rates that spurred consumer spending and house buying, and government stimulus.
But the consumer is spent and won't be lured by continuing low rates, and governments are pulling back, exerting a drag on gross domestic product where once they were stimulating growth.
Meanwhile, the global situation is worsening, restricting demand for Canadian exports.
Capital Economics' David Madani concurs with most of the analysis, but sees the economy performing even worse and more vulnerable to reversals.
"The deepening euro crisis and the risk it poses to financial stability has policy-makers on edge, particularly at a time when they are already grappling with the household sector's high debt levels and vulnerability to a housing correction," he said in his report.
Even Canada's ace in the hole — commodities it sells to the world — could be in store for a setback due to weaker economic growth in the United States and China, as well as Europe's double-dip recession.
"While growth in business investment continues at a fairly moderate pace, the sharp drop back in commodity prices may jeopardize specific mining projects," said Madani.
Under both scenarios, job growth in Canada will be modest at best going forward.
The CIBC sees about 280,000 new jobs this year, but over half of those have already happened in the first five months of 2012. Madani expects the rest of the year will see minimal job creation, perhaps in the neighbourhood of 50,000.
Both expect 2013 to be worse on the jobs front.
The two-year forecasts are considerably darker than the Bank of Canada's official projection of 2.4 growth in both years, and even slower than the consensus estimates used by Finance Minister Jim Flaherty in his March budget.
But the central bank may need to revise its assumptions in the upcoming monetary policy review in July given recent developments. First quarter growth of 1.9 per cent was significantly slower than its 2.5 expectation, and the second quarter may equally disappoint.
Madani also does not see much of a chance that Bank of Canada governor Mark Carney will raise rates any time soon, and suggests with the central bank's setting already at one per cent, the federal government may need to step in with stimulus should matters deteriorate.
Although Canada's internal economy is weak and also subject to shocks, most of the big risks remain from abroad.
CIBC says it is downgrading its global growth forecast to three per cent this year, the slowest pace since the recession, noting that some emerging markets are on the boundary of a hard landing. As well, it warns an external shock may occur if political gridlock in the U.S. blocks extension of fiscal stimulus that is keeping that economy out of recession. And Europe is far from having solved its debt problems.
"The global economy hasn't fallen off a 2008-style cliff," noted CIBC chief economist Avery Shenfeld.
"But it's been too close to the precipice for investor comfort."
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