TORONTO - Economists say Canada is headed for one of the toughest financial periods in recent memory, as job losses climb and energy prices tumble, but it's hard to tell just how bad it might get over the next year and a half.
Making it hard to predict, says TD Bank (TSX:TD) chief economist Don Drummond, is that the current economic crisis hasn't followed historical trends so far.
"The starting point doesn't have any comparisons, that's the difficulty," he said on Tuesday.
"You try to find a similar period in history and look at the conditions that will match that. But what do you do when you've never been here in history?"
Drummond says today's trouble is unlike the Great Depression, the Japanese banking problems of the 1990s or any other major periods of stock market turmoil.
Which isn't to say that economists are shying away from making dire forecasts.
Canadian Auto Workers economist Jim Stanford is betting on the darker side of things, predicting that Canada will be in a full-blown recession by the end of this year.
He bases his pessimistic outlook on plummeting oil prices, which have descended from a record-high above US$150 a barrel to below US$90 on Tuesday.
"Our economy has been very reliant over the last five years on the commodities bubble," he said.
"If anything, the downturn in Canada could be worse because on top of the financial uncertainty, we had invested so many eggs in the resource basket. Now that the commodity bubble has popped, we're going to feel that pain on top of the general financial uncertainty that everyone is grappling with."
Furthermore, the manufacturing sector in Central Canada is going to wallow in its existing problems for several years and will likely see more job cuts -- up to another 100,000 -- within the next year, Stanford predicted.
"Our manufacturing sector has been decimated and many of those jobs aren't coming back," he said.
And the longer the turmoil goes on, the more serious the hit will be to consumer confidence, suggested Doug Porter, chief economist at the Bank of Montreal (TSX:BMO).
"If you begin to get further weakness in employment that's what's really going to weigh in on consumer spending," he said.
"To some extent, the Canadian consumer has led a charmed life over the last few years between low interest rates, strong job growth and the falling price for a lot of big ticket items."
"It's tough to build a bullish case at this point."
The shift in overall economic sentiment is a far cry from where economists were a year ago, when they expressed confidence that the U.S. subprime mortgage debacle's influence on credit markets was easing and wouldn't bleed into the Canadian economy.
Last October, the Conference Board of Canada predicted that the U.S. housing crisis would stretch at least into the autumn of 2008, but that neither the U.S. nor Canada would be slammed by a recession.
CIBC World Markets (TSX:CM) economists said the stock markets were showing signs that credit troubles were easing, while TD Bank expected the loonie to hold near parity well into this year.
Instead, markets are still being punished by the rippling effects of the credit crisis, and the loonie was sliding below parity with the U.S. dollar within weeks of the TD economist's prediction.
Drummond was part of the group that put their bets on a stronger dollar, and he said that with the rash gyrations in markets and commodities, it has been tough to find an estimate and hold to it.
"You go out with a weak baseline case, acknowledge to people very honestly that there's an extraordinary amount of uncertainty and you have to be prepared for the possibility of it being quite a bit worse," he said.
