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Bank: Global headwinds will not blow growth off course

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However, US growth will remain sluggish.

Slowing activity in China and other emerging market economies will be a headwind to growth over the next year, but the U.S. economy is in good shape to weather the storm, according to a report released today by TD Economics, an affiliate of TD Bank.

"We can't ignore the renewed bout of financial volatility and deterioration in global growth, but also recognize that the American economy has a lot of strengths," says TD Bank's Chief Economist, Beata Caranci. "Domestic sectors of the economy, such as housing and consumer spending have been gaining strength over the last several months. With lower gasoline prices leaving even more in consumers' pockets, this is likely to continue."

Led by consumer spending, economic growth is expected to average 2.5% on an annual average basis in 2015, before rising to 2.6% in 2016. With the unemployment rate falling to 4.8% and the Fed in the midst of a gradual tightening cycle, growth is expected to slow modestly to 2.4% in 2017.

"The tumbling stock markets appear to have had less of an effect on consumer behavior than the continued decline in gasoline prices."

China's growing pains spread to the rest of the world

The chief cause for concern for the economic outlook is the slowdown in China and its ramifications for the rest of the world. Unease reached a fever pitch in August, following steep declines in the Chinese equity market and a decision by the central bank to devalue the Chinese yuan. Contagion spread to equity markets around the world and led the U.S. dollar to rise against a range of global currencies.

"China is the world's second largest economy and the largest source of demand for many of the world's commodities," says Caranci. "Its slowdown will weigh heavily on commodity-producing countries and those in its immediate vicinity."

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