www.td.

com/economics

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, 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 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 es-
timates due in part to the impact of the structural eco-
nomic 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 signifi-
cantly (graphs). In both cases, this would mark the
slowest 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).
Beata Caranci 416-982-8067

CANADIAN OUTPUT GAP U.S. OUTPUT GAP

Per cent of potential GDP Per cent of potential GDP

6 6

4 Excess supply Fcst. 4 Excess supply Fcst.

2 2

0 0

-2 -2

-4 -4

-6 Excess demand -6 Excess demand

-8 -8

-10 -10
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 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. Forecasted by TD Economics as at March 2009.
Source: Bank of Canada Source: Congressional Budget Office

Long-term Economic Forecast 1 March 12, 2009

 www.td.com/economics

CANADIAN ECONOMIC OUTLOOK:

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

Annual Average 4th Qtr/4th Qtr

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 2.0
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

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

 www.td.com/economics

U.S. ECONOMIC OUTLOOK:

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

Annual Average 4thQtr/4th Qtr

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

Long-term Economic Forecast 3 March 12, 2009

 www.td.com/economics

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
report, or for any loss or damage suffered.

Long-term Economic Forecast 4 March 12, 2009