Long Term Mar09Long-Term Economic Forecast

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Long-term Economic Forecast 1

www.td.com/economics

March 12, 2009

TD EconomicsLong-Term Economic Forecast

March 12, 2009

Following a deep recession in both Canada and the

U.S. in 2009, the following year is expected to mark

the first leg of the recovery phase. However, particu-

larly in the case of the U.S., the recovery in 2010 and

the following years will be shallow relative to historical

experience due to the lingering economic costs from

recapitalization, deleveraging among businesses andhouseholds, and huge public sector dissaving that will

need to be reversed.

• The economic recovery gains speed in 2011 and 2012

with quarterly annualized growth rates of 4% or more in

Canada and the U.S. However, substantial output gaps

will remain in both countries during this period, in spite

of the fact that we have applied conservative estimates

for potential real GDP growth of only 2% in Canada and

2.3% in the United States. Both of these are below

central bank estimates. We’ve incorporated these es-

timates due in part to the impact of the structural eco-

nomic influences cited above, but also because we haveassumed a downward cyclical influence on the rate of

economic growth stemming from depressed levels of

HIGHLIGHTS

Beata Caranci 416-982-8067

capital formation following the recession cycle. And

then there’s also the influence of a slowing demographic

trend, especially in the case of Canada.

• Under these assumptions for potential real GDP growth,

the output gaps for Canada and the U.S. do not close

over our forecast horizon, though they do narrow signifi-

cantly (graphs). In both cases, this would mark theslowest recovery back to the status-quo in post-war his-

tory.

• The slow uptake in the output gap should mitigate the

risk that inflation will become problematic once some

of the global and domestic risks abate. This will allow

central banks on both sides of the border time to pull

liquidity out of the financial system as the recovery takes

hold. As such, interest rates will likely remain at a

more accommodative stance for a longer period than

traditionally seen. We don’t believe the Bank of Canada

will return the overnight rate to a ‘neutral’ stance of 4.00%

until nearly the end of the forecast horizon (second half

of 2013).

U.S. OUTPUT GAP

-10

-8

-6

-4

-2

0

2

4

6

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Per cent of potential GDP

Fcst.

Forecasted by TD Economics as at March 2009.

Source: Congressional Budget Office

Excess supply

Excess demand

CANADIAN OUTPUT GAP

-10

-8

-6

-4

-2

0

2

4

6

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Fcst.

Forecasted by TD Economics as at March 2009.

Source: Bank of Canada

Per cent of potential GDP

Excess supply

Excess demand





March 12, 2009

Period-Over-Period Annualized Per Cent Change Unless Otherwise Indicated

08 09F 10F 11F 12F 13F 08 09F 10F 11F 12F 13F

Real GDP 0.5 -2.4 1.3 3.3 4.1 3.2 -0.7 -1.9 2.3 3.9 4.1 2.7

Consumer Expenditure 3.0 -2.0 0.9 2.9 4.7 4.2 0.3 -1.9 2.0 3.7 5.0 3.6

Durable Goods 5.2 -8.3 -0.2 4.9 9.3 7.2 -0.4 -6.6 1.8 7.1 9.2 6.4

Business Investment 1.7 -7.5 -1.3 4.0 6.9 5.3 -2.9 -6.2 1.0 5.4 7.0 4.6

Non-Res. Structures 1.1 -1.1 -0.6 3.6 6.1 3.9 4.1 -3.1 1.1 4.7 6.1 2.9

Machinery & Equipment 2.0 -12.9 -2.0 4.5 7.7 6.7 -8.8 -8.9 0.9 6.1 7.8 6.3

Residential Investment -2.9 -11.1 -1.5 4.4 6.7 3.7 -9.0 -8.2 1.7 5.8 6.1 2.8

Government Expenditure

on Goods & Services 3.4 4.2 4.2 0.8 -0.7 1.3 2.0 6.2 2.1 0.1 -0.6 2.1

Final Domestic Demand 2.5 -1.1 1.4 2.6 3.7 3.6 -0.3 -0.9 2.0 3.1 3.9 3.3

Exports -4.7 -15.2 -1.5 4.8 7.0 5.4 -7.4 -13.9 2.3 6.5 6.6 4.9

Imports 0.7 -14.9 -1.4 3.6 5.8 6.4 -8.4 -12.1 1.5 4.7 6.2 6.4

Change in Non-Farm

Inventories ($97 Bn) 5.5 0.2 -0.7 0.6 2.8 3.2 --- --- --- --- --- ---

Final Sales 0.6 -1.5 1.4 3.0 4.2 3.4 0.4 -1.1 2.2 3.7 4.2 2.9

International Current

Account Balance ($Bn) 10.1 -42.7 -33.6 -24.3 -8.8 -9.5 --- --- --- --- --- ---

% of GDP 0.6 -2.8 -2.2 -1.5 -0.5 -0.5 --- --- --- --- --- ---

Pre-tax Corp. Profits 6.4 -31.4 3.3 20.2 11.8 7.3 -7.3 -25.3 16.7 16.9 9.8 6.0

% of GDP 13.5 9.7 9.9 11.3 11.9 12.1 --- --- --- --- --- ---

GDP Deflator (Y/Y) 3.9 -2.2 0.4 1.4 2.0 1.8 1.8 -0.9 0.5 1.8 2.0 1.7

Nominal GDP 4.4 -4.5 1.7 4.8 6.2 5.1 1.0 -2.8 2.8 5.8 6.1 4.5

Labour Force 1.7 1.0 0.3 0.7 0.9 0.8 1.4 0.7 0.2 0.9 0.9 0.8

Employment (%) 1.5 -2.1 -0.6 1.2 1.7 2.0 0.8 -3.0 0.5 1.4 1.8 2.1

Employment ('000s) 258 -365 -106 194 279 337 134 -520 81 231 304 356

Unemployment Rate (%) 6.2 9.0 9.9 9.5 8.8 7.8 --- --- --- --- --- ---

Personal Disp. Income 6.0 0.4 1.9 3.7 5.1 5.5 5.0 -0.5 3.0 4.2 5.2 5.2

Pers. Savings Rate (%) 3.7 6.0 6.6 6.4 6.7 6.7 --- --- --- --- --- ---

Cons. Price Index (Y/Y) 2.4 -0.8 0.8 1.2 1.7 1.9 1.9 -0.5 1.0 1.5 1.8 2.0

Core CPI (Y/Y) 1.7 0.9 0.8 1.1 1.5 1.8 2.2 0.3 0.9 1.3 1.6 2.0Housing Starts ('000s) 211 129 135 150 171 175 --- --- --- --- --- ---

Productivity:

Real GDP / worker (Y/Y) -1.1 0.0 2.0 2.0 2.7 1.3 -1.2 1.3 1.8 2.4 2.5 0.8

F: Forecast by TD Economics as at March 2009

Source: Statistics Canada, Bank of Canada, Canada Mortgage and Housing Corporation, Haver Analytics

CANADIAN ECONOMIC OUTLOOK:

4th Qtr/4th Qtr Annual Average





March 12, 2009

08 09F 10F 11F 12F 13F 08 09F 10F 11F 12F 13F

Real GDP 1.1 -3.1 1.4 3.6 4.5 3.5 -0.8 -2.1 2.4 4.4 4.2 3.2

Consumer Expenditure 0.2 -1.6 1.2 2.9 3.6 2.9 -1.5 -0.3 2.0 3.6 3.4 2.7

Durable Goods -4.3 -7.7 5.6 9.9 10.9 9.4 -11.4 0.2 7.1 11.3 10.5 8.9

Business Investment 1.7 -16.7 -6.5 5.7 11.9 8.2 -5.0 -17.6 -0.7 9.8 11.3 6.6

Non-Res. Structures 11.5 -10.8 -4.5 0.6 0.4 -0.1 7.3 -15.2 -0.7 0.8 0.3 -0.3

Machinery & Equipment -3.0 -19.9 -7.8 9.3 19.3 12.6 -11.2 -19.1 -0.8 16.0 17.9 10.0

Residential Construction -20.7 -25.1 -0.2 25.6 26.9 13.4 -19.3 -22.9 12.1 29.5 23.4 8.7

Govt. Consumption

& Gross Investment 2.9 2.5 2.1 0.3 -0.6 0.6 3.3 2.4 1.3 -0.5 -0.1 1.1

Final Domestic Demand 0.0 -3.1 0.7 3.1 4.1 3.3 -1.7 -2.2 1.9 3.9 4.0 3.0

Exports 6.2 -9.1 2.5 6.5 8.8 7.9 -1.8 -5.3 3.9 8.3 8.5 7.5

Imports -3.4 -10.4 0.7 6.0 7.2 5.6 -7.1 -7.2 3.4 6.9 7.0 4.9

Change in Non-Farm

Inventories ($96 Bn) -32.8 -72.9 -16.5 36.5 70.6 72.4 --- --- --- --- --- ---

Final Sales 1.4 -2.7 0.9 3.1 4.2 3.5 -0.7 -1.8 1.9 3.9 4.0 3.3

International Current

Account Balance ($Bn) -660 -514 -525 -578 -633 -702 --- --- --- --- --- ---

% of GDP -4.6 -3.7 -3.7 -3.9 -4.0 -4.2 --- --- --- --- --- ---

Pre-tax Corporate Profits

including IVA&CCA -10.5 -28.2 11.9 17.8 14.2 12.2 -23.3 -14.6 18.9 15.6 15.1 10.5

% of GDP 10.3 7.5 8.3 9.3 10.1 10.8 --- --- --- --- --- ---

GDP Deflator (Y/Y) 2.2 1.4 0.2 0.7 1.3 1.6 2.0 1.0 0.1 1.1 1.4 1.7

Nominal GDP 3.3 -1.7 1.6 4.3 5.8 5.1 1.2 -1.2 2.5 5.5 5.6 4.9

Labour Force 0.8 -0.3 0.2 0.8 1.1 1.1 0.7 -0.6 0.5 0.9 1.1 1.1

Employment -0.4 -3.5 -0.8 2.0 3.0 2.6 -1.6 -3.5 0.5 2.7 2.9 2.4

Change in Empl. ('000s) -558 -4,759 -1,120 2,664 3,986 3,608 -2,239 -4,781 717 1,632 2,386 3,049

Unemployment Rate (%) 5.8 8.9 10.1 9.6 8.4 7.5 --- --- --- --- --- ---

Personal Disp. Income 4.7 1.9 1.2 3.8 5.3 4.7 2.9 2.0 1.9 5.1 5.0 4.6

Pers. Savings Rate (%) 1.8 5.2 4.8 4.8 4.9 4.9 --- --- --- --- --- ---

Cons. Price Index (Y/Y) 3.8 -0.9 0.5 1.0 1.5 1.9 1.5 -0.1 0.6 1.2 1.7 2.1

Core CPI (Y/Y) 2.3 1.0 0.5 0.8 1.4 1.9 2.0 0.6 0.6 1.0 1.6 2.1

Housing Starts (mns) 0.90 0.44 0.53 0.87 1.23 1.40 --- --- --- --- --- ---

Productivity:

Real Output per hour (y/y) 2.2 1.7 2.8 2.1 1.8 1.4 1.1 1.8 2.5 2.1 1.7 1.2

F: Forecast by TD Economics as at March 2009

Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, TD Economics

U.S. ECONOMIC OUTLOOK:

Period-Over-Period Annualized Per Cent Change Unless Otherwise Indicated

Annual Average 4thQtr/4th Qtr





March 12, 2009

This report is provided by TD Economics for customers of TD Bank Financial Group. It is for information purposes only and may not

be appropriate for other purposes. The report does not provide material information about the business and affairs of TD Bank

Financial Group and the members of TD Economics are not spokespersons for TD Bank Financial Group with respect to its

business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not

guaranteed to be accurate or complete. The report contains economic analysis and views, including about future economic and

financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and

uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that

comprise TD Bank Financial Group are not liable for any errors or omissions in the information, analysis or views contained in this

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