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TD Economics Long-Term Economic Forecast March 12, 2009
HIGHLIGHTS • 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, particularly 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 and households, 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 estimates due in part to the impact of the structural economic influences cited above, but also because we have assumed a downward cyclical influence on the rate of economic growth stemming from depressed levels of
•
•
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 significantly (graphs). In both cases, this would mark the slowest recovery back to the status-quo in post-war history. 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).
Beata Caranci 416-982-8067
CANADIAN OUTPUT GAP 6 4
U.S. OUTPUT GAP
Per cent of potential GDP Excess supply
6 4
Fcst.
2
2
0
0
-2
-2
-4
-4
-6
Excess demand
-6
-8
-8
-10
-10
Excess supply
Fcst.
Excess demand
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Forecasted by TD Economics as at March 2009. Source: Congressional Budget Office
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Forecasted by TD Economics as at March 2009. Source: Bank of Canada
Long-term Economic Forecast
Per cent of potential GDP
1
March 12, 2009
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CANADIAN ECONOMIC OUTLOOK: Period-Over-Period Annualized Per Cent Change Unless Otherwise Indicated Annual Average 08
11F
12F
13F
11F
12F
13F
0.5
-2.4
1.3
3.3
4.1
3.2
-0.7
-1.9
2.3
3.9
4.1
2.7
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
-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 ($97 Bn)
5.5
0.2
-0.7
0.6
2.8
3.2
---
---
---
---
---
---
Final Sales
0.6
-1.5
1.4
3.0
4.2
3.4
0.4
-1.1
2.2
3.7
4.2
2.9
10.1
-42.7
-33.6
-24.3
-8.8
-9.5
---
---
---
---
---
---
Real GDP Consumer Expenditure
Residential Investment
International Current Account Balance ($Bn) % of GDP
09F
10F
4th Qtr/4th Qtr 08
09F
10F
0.6
-2.8
-2.2
-1.5
-0.5
-0.5
---
---
---
---
---
---
6.4
-31.4
3.3
20.2
11.8
7.3
-7.3
-25.3
16.7
16.9
9.8
6.0
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
2.0
Housing 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
Pre-tax Corp. Profits % of GDP
F: Forecast by TD Economics as at March 2009 Source: Statistics Canada, Bank of Canada, Canada Mortgage and Housing Corporation, Haver Analytics
Long-term Economic Forecast
2
March 12, 2009
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U.S. ECONOMIC OUTLOOK: Period-Over-Period Annualized Per Cent Change Unless Otherwise Indicated Annual Average 08
11F
12F
13F
1.1
-3.1
1.4
3.6
4.5
3.5
-0.8
-2.1
2.4
4.4
4.2
3.2
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
Real GDP Consumer Expenditure
09F
10F
11F
4thQtr/4th Qtr 12F
13F
08
09F
10F
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
-32.8
-72.9
-16.5
36.5
70.6
72.4
---
---
---
---
---
---
1.4
-2.7
0.9
3.1
4.2
3.5
-0.7
-1.8
1.9
3.9
4.0
3.3
-660
-514
-525
-578
-633
-702
---
---
---
---
---
---
-4.6
-3.7
-3.7
-3.9
-4.0
-4.2
---
---
---
---
---
---
-10.5
-28.2
11.9
17.8
14.2
12.2
-23.3
-14.6
18.9
15.6
15.1
10.5
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
Change in Non-Farm Inventories ($96 Bn) Final Sales International Current Account Balance ($Bn) % of GDP Pre-tax Corporate Profits including IVA&CCA % of GDP
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
---
---
---
---
---
---
1.1
1.8
2.5
2.1
1.7
1.2
Housing Starts (mns) Productivity: Real Output per hour (y/y)
0.90 2.2
0.44 1.7
0.53 2.8
0.87 2.1
1.23 1.8
1.40 1.4
F: Forecast by TD Economics as at March 2009 Source: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, TD Economics
Long-term Economic Forecast
3
March 12, 2009
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Long-term Economic Forecast
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March 12, 2009