TORONTO (AP) -- This year will be even worse for the Canadian economy than 2008, some of the country's top economists say.
TD Bank chief economist Don Drummond said at a gathering at the Economic Club of Canada on Wednesday that the challenges faced by the U.S. will start to be felt more keenly in Canada during the first three months of this year. About 80 percent Canada's trade is with the U.S.
High commodity prices propped up resource-rich Canada in the first half of last year, but the subsequent broad commodity decline has slowed Canada's economy in recent months.
Drummond said the first half of 2009 looks grim for Canada, and Scotiabank economist Warren Jestin said layoffs are just starting.
"We shouldn't really be thankful for the end of 2008," Drummond said. "It may well have proven to have been a better year than 2009. I think we'll have a rough fourth quarter, but it will really hit in Canada in the first quarter."
Craig Wright, chief economist at Royal Bank of Canada, said average Canadians will feel the pain more this year.
Avery Shenfeld, senior economist at CIBC World Markets, said earnings for companies listed on Canada's main stock exchange will drop 15 to 20 percent.
"There's a lot of bad news to get through over the next six months as some of that reality sets in," Shenfeld said. However, he said, the Toronto Stock Exchange is already reflecting much of that.
The decline will likely push Canada's central bank to further slash interest rates, to as low as 0.5 percent, in an effort to fend off deepening economic problems, Shenfeld said.
Last month, the central bank slashed a key interest rate by three quarters of a percentage point to 1.5 per cent, its lowest level in half a century. That came as its U.S. counterpart, the Federal Reserve, ratcheted down its key rate to near zero from 1 percent.
In a separate commentary Wednesday, TD Securities predicted interest rates in Canada could fall another one percentage point in the next three months -- with half point cuts in January and early March.
The global economic meltdown will continue to affect Canada for at least the first half of the year before it returns to moderate growth, the economists of Canada's top five banks agreed.
A report from BMO Capital Markets suggested real GDP will contract just over two percent, while unemployment will rise to eight percent by the end of the year. Canada's unemployment rate is 6.3 percent.
Home prices in Canada are also expected to erode further while consumer spending tightens, especially in auto sales, the report said.
"The downturn is without precedent and there's no place to hide," Bank of Montreal economist Sherry Cooper said.