TORONTO, Ont. – Canadians worried about the darkening clouds on the economic horizon will have to live with modest growth of just 2% for 2011 and 2012 but we are not heading towards recession, Kenrick Jordan, senior economist with BMO Capital Markets, told the 25^th annual Transportation Conference yesterday.

“The global economy is still growing but much slower than anticipated even just a few months ago. The emerging markets are experiencing the most growth but in North America the economy has lost momentum,” Jordan said.

Whereas the forecast is for 3.7% growth in global GDP in 2011 and 3.9% in 2012, the forecast for North America is just 1.9% this year and 2.6% next year.

The US remains the drag on the North American economy because what precipitated the recession – a slumping US housing market – is still recovering slowly. The high unemployment rate in the US is also hurting its recovery and consumer confidence has fallen with the deterioration in the global economic outlook.  Jordan forecast just 1.6% GDP growth for the US this year and 2.5% next year.

But for those looking to invest in their business, there are positives. Jordan said the tepid recovery means the central banks on both sides f the border will not likely move to raise interest rates. Jordan said the Bank of Canada will probably wait till mid next year to raise its rate while the central bank rate in the US may not be raised till 2013. There is also good news regarding input costs with most industrial prices for key items such as metals and oil declining. Nor will there likely be the upward push on wages there has been during past economic recoveries.

“With so much slack in the economy, it’s hard for inflation to take off and wages to grow,” he said.

Canada is also well positioned to ride out any economic turbulence. The country’s fiscal condition is strong, its banks are well positioned and highly regarded worldwide, corporate balance sheets are in good shape, our resource sectors benefit from growth in the emerging markets and our labor market remains relatively healthy.

The growing indebtedness of Canadian households (we have actually surpassed the high spending Americans who have moderated their habits over the past couple of years) is a bit of a concern. But with interest and mortgage rates as low as they are, that is not causing as huge an issue as it could if interest rates were higher. And the Canadian government is in a much better situation than most western nations. For example, Canada’s government debt amounts to about 30% of GDP compared to 67% for the US and 116% for Greece.

“Canadian economic fundamentals are pretty solid but Canada is not an island onto itself,” Jordan said. “We are susceptible to the faltering of US demand and a strong Canadian dollar,”  Jordan said.

 Speaking of the dollar, which had dropped below parity recently, Jordan expects it to regain its strength through 2012 and be trading above parity, continuing to present competitive issues for Canadian manufacturers and transportation service providers selling into the US market.