Long Term Economic Forecast by TD Economics

LONG-TERM ECONOMIC FORECAST
TD Economics
December 14, 2011
UNITED STATES
A recession in the eurozone and slowdown in emerging markets combined with fiscal restraint and
household deleveraging will make for a sub-par pace of economic growth over the next two years.
Real GDP growth is expected to average 1.9% over the 2011 to 2012 period, improving to 2.3% in
2013 and an average of 3.1% in 2014 and 2015. The above potential pace of growth in the later
years will allow the unemployment rate which currently sits at 8.6% to fall to an average of 7.4%
by 2015.
In the long-run, the U.S. economy should be expected to grow between 2.0% and 2.5% in line with
trend labor force growth and productivity. However, until the overhang of bad debt in the housing market is cleared, spending growth is unlikely to be sufficient to return the economy to full employment.
The Federal Reserve has indicated that it expects to leave short-term interest rates on hold until
mid-2013. Given the persistance of elevated unemployment, we expect to see a slow move upwards
thereafter with the federal funds rate reaching 2.0% by the end of 2014 and 3.0% by the end of 2015.
CANADA
Canadas position as a small open economy will make it vulnerable to the global economic slowdown expected over 2012. Even as global growth rebounds in 2013, there are limits to how fast the
Canadian economy can grow over the long term.
The household debt-to-income ratio reached a record (and in our view, excessive) level of 151% in
the third quarter of 2011. If indebtedness continues to grow at its current speed, the debt-to-income
ratio will hit 160% the level at which both U.S. and U.K. households got into trouble within the
next few years. To stop indebtedness from rising, households are going to have to cool borrowing
further and increase savings, both of which will imply a modest pace of consumer spending over
the long term.
Similarly, with federal and provincial governments committed to eliminating their deficits by the fiscal year 2014-2015, government spending growth is expected to run below 1% over the forecast.
Driven by firm commodity prices, strong corporate balance sheets, relatively low interest rates, and
a supportive tax structure, business investment is expected to be a key driver of economic growth
over the forecast.
With continued threats to Canadian economic growth from abroad, the Bank of Canada is likely to
remain cautious in raising interest rates over the next several years. We expect the overnight rate to
remain on hold at 1.0% until early 2013. The rate is expected to move up slowly from there, reaching
3.0% by the end of 2014 and 3.5% by the end of 2015.
James Marple, Senior Economist, 416-982-2557

Diana Petramala, Economist, 416-982-6420
TD Economics | www.td.com/economics
U.S. ECONOMIC OUTLOOK

Period-Over-Period Annualized Per Cent Change Unless Otherwise Indicated
Annual Average
4th Qtr/4th Qtr
11F
12F
13F
14F
15F
11F
12F
13F
14F
15F
1.8
1.9
2.3
3.0
3.3
1.7
1.8
2.5
3.2
3.4
Consumer Expenditure
2.3
2.1
2.2
2.7
2.8
1.9
2.0
2.4
2.7
2.9
Durable Goods
8.1
6.0
4.9
4.4
3.0
6.4
5.1
5.2
3.2
2.9
Business Investment
8.8
5.9
6.9
7.1
6.2
8.2
4.4
7.6
6.8
6.1
Non-Res. Structures
4.6
5.2
4.3
6.3
8.0
5.2
3.5
4.5
7.4
8.0
Machinery & Equipment
10.3
6.1
7.9
7.4
5.5
9.3
4.8
8.8
6.5
5.3
Residential Investment
Gov't. Expenditures
-1.8
-1.9
3.4
-1.1
5.9
-1.6
13.0
-1.0
19.1
-0.7
1.6
-1.9
3.7
-1.5
7.9
-1.7
16.3
-0.7
20.2
-0.7
Final Domestic Demand
2.0
1.8
2.0
2.7
3.0
1.8
1.6
2.3
2.9
3.1
Exports
6.9
3.9
6.3
8.8
8.1
5.5
3.4
8.0
8.8
7.7
Imports
4.9
3.2
5.1
6.2
5.8
3.5
3.9
5.8
6.4
5.3
Change in Non-Farm
Inventories
21.6
22.7
37.7
40.2
40.6
---
---
---
---
---
Final Sales
2.1
1.9
2.1
3.0
3.3
2.0
1.5
2.5
3.1
3.4
-461.7
-457.7
-458.0
-432.0
-399.2
---
---
---
---
---
-3.1
-2.9
-2.8
-2.5
-2.2
---
---
---
---
---
7.9
3.0
2.7
4.8
4.8
6.6
1.7
3.7
5.0
4.7
12.9
12.8
12.6
12.6
12.5
---
---
---
---
---
GDP Deflator (Y/Y)
2.1
1.8
1.9
1.9
2.0
2.0
2.0
1.9
2.0
2.0
Nominal GDP
3.9
3.7
4.2
5.0
5.3
3.8
3.8
4.4
5.2
5.4
Labour Force
-0.2
0.9
1.1
1.0
0.9
0.1
1.0
1.1
0.9
0.8
Employment
1.0
1.1
1.5
1.8
1.9
1.2
1.2
1.7
1.8
2.0
1,328
1,492
2,049
2,417
2,652
1,594
1,613
2,263
2,446
2,756
Unemployment Rate (%)
9.0
8.8
8.6
8.1
7.4
---
---
---
---
---
Personal Disp. Income
3.4
3.0
3.6
4.9
5.4
2.7
3.9
3.8
5.1
5.6
Pers. Savings Rate (%)
4.4
3.7
3.2
3.4
3.9
---
---
---
---
---
Cons. Price Index (Y/Y)
3.2
1.7
1.7
2.2
2.2
3.4
1.4
2.0
2.3
2.3
Core CPI (Y/Y)
1.6
1.9
1.8
2.1
2.2
2.1
1.8
1.8
2.2
2.2
Housing Starts (mns)
0.60
0.65
0.76
0.99
1.33
---
---
---
---
---
Productivity:
Real GDP / worker (Y/Y)
1.0
1.0
0.9
1.6
2.0
0.9
0.7
1.0
1.9
2.1
Real GDP
International Current
Account Balance ($Bn)
% of GDP
Pre-tax Corp. Profits
including IVA&CCA
% of GDP
Employment ('000s)
F: Forecast by TD Economics as at December 2011

Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, TD Economics
December 14, 2011
CANADIAN ECONOMIC OUTLOOK

Period-Over-Period Annualized Per Cent Change Unless Otherwise Indicated
Annual Average
4th Qtr/4th Qtr
11F
12F
13F
14F
15F
11F
12F
13F
14F
15F
2.4
1.7
2.2
2.6
2.3
2.1
1.6
2.5
2.5
2.2
Consumer Expenditure
1.9
1.6
2.0
2.0
2.2
1.2
1.6
2.1
2.0
2.2
Durable Goods
0.4
0.3
2.3
0.9
2.0
-0.8
0.0
2.8
0.7
2.1
Business Investment
11.7
3.1
9.8
9.1
5.5
5.9
5.0
12.3
6.6
4.8
Non-Res. Structures
9.3
1.4
6.2
5.5
4.4
3.2
2.5
7.6
4.1
4.5
Machinery & Equipment
14.1
4.8
13.3
12.5
6.4
8.7
7.5
16.7
8.9
5.0
Residential Investment
Government Expenditures
2.7
1.3
1.1
0.4
-2.8
-0.1
-0.8
0.4
3.2
0.8
5.8
0.4
-0.9
0.3
-5.4
-0.1
2.2
0.6
4.6
0.9
Final Domestic Demand
2.8
1.4
2.0
2.3
2.3
1.8
1.5
2.2
2.3
2.4
Exports
4.3
2.9
5.0
6.3
4.7
3.8
2.3
6.6
5.6
4.4
Imports
6.4
1.3
4.4
4.8
4.7
4.7
1.7
5.5
4.4
4.9
Change in Non-Farm
Inventories ($2002 Bn)
9.8
7.0
7.0
4.5
2.9
---
---
---
---
---
Final Sales
2.0
2.1
2.5
3.0
2.3
1.3
1.9
2.9
2.8
2.0
-52.1
-32.4
-25.6
-12.6
-9.3
---
---
---
---
---
Real GDP
International Current
Account Balance ($Bn)
% of GDP
-3.0
-1.8
-1.4
-0.7
-0.5
---
---
---
---
---
13.0
1.4
8.2
4.5
0.7
7.4
2.1
9.3
4.6
0.7
11.9
11.8
12.2
12.2
11.8
---
---
---
---
---
GDP Deflator (Y/Y)
3.0
1.3
1.7
2.0
1.9
2.1
1.4
1.9
2.0
1.9
Nominal GDP
5.4
2.9
3.9
4.7
4.2
4.3
3.0
4.4
4.6
4.1
Labour Force
1.0
0.9
1.2
1.1
0.9
1.1
1.1
1.3
0.9
0.9
Employment
1.6
0.8
1.4
1.4
1.2
1.5
0.7
1.8
1.1
1.2
Employment ('000s)
272
130
252
246
209
251
130
319
196
216
Unemployment Rate (%)
7.4
7.6
7.4
7.1
6.9
---
---
---
---
---
Personal Disp. Income
2.9
2.4
3.6
3.9
4.0
2.1
2.8
4.0
3.9
4.1
Pers. Savings Rate (%)
3.8
3.1
3.4
3.7
3.8
---
---
---
---
---
Cons. Price Index (Y/Y)
2.9
1.7
1.8
2.0
2.0
2.7
1.5
1.9
2.0
2.0
Core CPI (Y/Y)
1.7
1.5
1.7
2.0
1.9
2.0
1.3
1.8
2.0
1.9
Housing Starts ('000s)
192
181
172
168
172
---
---
---
---
---
Productivity:
Real GDP / worker (Y/Y)
0.7
0.9
0.7
1.2
1.1
0.6
0.8
0.7
1.4
1.0
Pre-tax Corp. Profits

% of GDP

Source: Statistics Canada, Bank of Canada, Canada Mortgage and Housing Corporation, Haver Analytics
December 14, 2011
INTEREST RATE OUTLOOK
End of Period
Annual Average
2011F 2012F 2013F 2014F 2015F 2011F 2012F 2013F 2014F 2015F
CANADIAN FIXED INCOME
Overnight Target Rate (%)
1.00
1.00
1.88
2.75
3.50
1.00
1.00
2.50
3.00
3.50
3-mth T-Bill Rate (%)
0.90
0.94
1.95
2.95
3.73
0.90
1.00
2.60
3.25
3.75
2-yr Govt. Bond Yield (%)
1.32
1.14
2.45
3.64
4.14
0.95
1.40
3.10
3.95
4.15
1.98
1.78
2.83
3.86
4.29
1.40
2.20
3.30
4.15
4.30
2.71
2.53
3.49
4.23
4.70
2.20
3.00
3.70
4.45
4.70
10-yr-2-yr Govt. Spread (%)
1.39
1.39
1.04
0.59
0.56
1.25
1.60
0.60
0.50
0.55
Fed Funds Target Rate (%)
0.25
0.25
0.56
1.63
2.75
0.25
0.25
1.00
2.00
3.00
0.04
0.10
0.54
1.83
3.08
0.05
0.10
1.10
2.35
3.20
0.44
0.35
1.11
2.30
3.51
0.25
0.50
1.55
2.90
3.65
1.47
1.23
1.85
2.78
3.91
0.90
1.55
2.10
3.30
4.05
2.66
2.38
2.95
3.94
4.46
2.10
2.75
3.25
4.35
4.50
10-yr-2-yr Govt. Spread (%)
2.22
2.03
1.84
1.64
0.95
1.85
2.25
1.70
1.45
0.85
0.85
0.84
1.41
1.13
0.65
0.85
0.90
1.50
0.90
0.55
0.87
0.79
1.34
1.34
0.63
0.70
0.90
1.55
1.05
0.50
0.51
0.55
0.98
1.09
0.38
0.50
0.65
1.20
0.85
0.25
0.04
0.15
0.54
0.29
0.24
0.10
0.25
0.45
0.10
0.20
U.S. FIXED INCOME
CANADA-U.S. SPREADS

Source: Statistics Canada, Bank of Canada, Bloomberg
This report is provided by TD Economics. 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 Group and the members of TD Economics are not
spokespersons for TD Bank 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 Group are not liable for any errors or omissions in the information, analysis or views contained
in this report, or for any loss or damage suffered.
December 14, 2011

Long Term Economic Forecast by TD Economics

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LONG-TERM ECONOMIC FORECAST

James Marple, Senior Economist, 416-982-2557

U.S. ECONOMIC OUTLOOK

4th Qtr/4th Qtr

Machinery & Equipment

Final Domestic Demand

GDP Deflator (Y/Y)

Unemployment Rate (%)

Personal Disp. Income

Pers. Savings Rate (%)

Cons. Price Index (Y/Y)

Core CPI (Y/Y)

Housing Starts (mns)

F: Forecast by TD Economics as at December 2011

December 14, 2011

CANADIAN ECONOMIC OUTLOOK

4th Qtr/4th Qtr

Machinery & Equipment

Final Domestic Demand

GDP Deflator (Y/Y)

Unemployment Rate (%)

Personal Disp. Income

Pers. Savings Rate (%)

Cons. Price Index (Y/Y)

Core CPI (Y/Y)

Housing Starts ('000s)

Pre-tax Corp. Profits

F: Forecast by TD Economics as at December 2011

December 14, 2011

INTEREST RATE OUTLOOK

3-mth T-Bill Rate (%)

2-yr Govt. Bond Yield (%)

5-yr Govt. Bond Yield (%)

10-yr Govt. Bond Yield (%)

10-yr-2-yr Govt. Spread (%)

Fed Funds Target Rate (%)

3-mth T-Bill Rate (%)

2-yr Govt. Bond Yield (%)

5-yr Govt. Bond Yield (%)

10-yr Govt. Bond Yield (%)

10-yr-2-yr Govt. Spread (%)

3-mth T-Bill Rate (%)

2-yr Govt. Bond Yield (%)

5-yr Govt. Bond Yield (%)

10-yr Govt. Bond Yield (%)

U.S. FIXED INCOME

F: Forecast by TD Economics as at December 2011

December 14, 2011

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