More and more leading economists are saying that Canada is headed for a recession, and the federal government is racing towards a massive deficit.
Toronto Dominion Bank chief economist Don Drummond is forecasting a deficit of $10.4-billion in the 2009-2010 fiscal year as well as a $9.9-billion deficit in 2010-2011.
He does predict a balanced budget for this fiscal year. He forecasts assume that government spending and taxing remain at their current level.
On Thursday, a second Canadian bank forecasted a recession. Bank of Montreal said that it expects the Canadian economy to retract in the last quarter of 2008 and the first of 2009.
"Canada cannot escape the knock-on damage of not only the U.S. recession, but also the wealth destruction arising from the plunge in our stock market and the slowdown in our housing markets," chief economist Sherry Cooper said in a commentary.
Bank of Nova Scotia had previously forecasted a recession.
The Conservatives have confirmed to CTV that Jim Flaherty will be staying on a finance minister, signalling to Bay Street that they intend to keep a steady hand in economic policy.
Prime Minister Stephen Harper repeatedly called the fundamentals of Canada's economy strong throughout the election campaign.
But there are increasing signs that Canada will be hit harder by the U.S. financial crisis than anyone was predicting just a month ago.
Statistics Canada reported Thursday that manufacturing sales were down in August by $52 billion, after four months of increases.
Even mighty Alberta is expected to see its economy retract as crude oil prices continue to plunge, as U.S. demand drops off.
The uncertainty about how low the economic situation in the U.S. can go even has the experts worried.
"I think everybody has to be worried when you haven't realized where the bottom is," Drummond said.
Thursday's markets
The Toronto stock market rallied from steep early losses but still closed down.
Toronto's S&P/TSX composite was down about 300 points earlier Thursday, but closed only 53.88 points down at 9,269.97.
The big deficit was erased as investors bought up energy stock, despite the oil price drop.
But in New York, the markets made a stunning comeback as the Dow Jones industrial average closed up 401.35 points to 8,979.26, one day after its worst one-day plunge since 1987.
The Canadian dollar was up 0.45 cent to 84.63 cents U.S.
The price of oil also fell below US$70 a barrel for the first time since August 2007. The November crude contract was down $4.69 to sit at US$69.85.
The market movement came as Statistics Canada reported manufacturing sales declined 3.7 per cent to $52 billion in August and was led by the petroleum and coal sectors.
The transportation equipment industry also fell 4.3 per cent.
BNN's Michael Kane told Â鶹´«Ã½net that American usage of crude is significantly down from last year.
He said that as oil rigs start coming back online in the Gulf of Mexico after the hurricane season, the price of crude oil could go as low as $54 according to some analysts.
Kane said that consumers would normally expect to see a reduction on the price of gasoline due to the crude oil price drop but that seems "up in the air" at the moment.
World stocks tumbled Thursday, led by an 11 per cent plunge on Tokyo's market, as investors continue to fear a global recession.
Tokyo's Nikkei 225 stock average fell 1,089.02 points, or 11.41 per cent, to 8,458.45.
The losses mark Tokyo's biggest drop since the 1987 stock market crash.
