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The Economic Outlook
Derek Burleton
Vice President and Deputy Chief Economist
October 2011
GUT-WRENCHING VOLATILITY
Index
Index
14,500
1,400
14,000
1,300
13,500
13,000
1,200
12,500
12,000
1,100
S&P TSX (lhs)
S&P 500 (rhs)
11,500
11,000
Jan-11
1,000
Feb-11
Mar-11
Source: WSJ, Haver, Bloomberg
*Last plotted: October 19th 2011
Apr-11
May-11
Jun-11
Aug-11
Sep-11
Oct-11
CHINA TO HELP KEEP WORLD GROWTH EXPANDING
MODERATELY
Y/Y % Chg.
Y/Y % Chg.
14
14
World
12
12
China
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
2000
2002
2004
2006
2008
2010
Forecast by TD Economics as at September 2011; Source: IMF, TD Economics
2012
MAJOR GLOBAL ECONOMIC
AND FINANCIAL RISKS
 Political:
̶ Europe
̶ U.S. budget impasse
 Economic:
̶ U.S. (risk of double-dip recession pegged at 40%)
̶ China hard landing (less than 15-20%)
COMMODITY PRICES HAVE TRENDED UP
400
Index, 1997=100
Index, 1997=100
350
400
350
Overall TDCI
300
300
TDCI Ex. Energy
250
250
200
200
150
150
100
100
50
50
0
0
2005
2006
2007
2008
* Index of 18 Canadian resource commodity prices in US$
Source: TD Economics; Last plotted: Q2/2011
2009
2010
2011F
PRECIOUS METALS HAVE TOPPED THE LIST OF
GAINERS
% Chg. Between August 2010 to August 2011
Silver
Gold
Coal
Wheat
Canola
Barley
Copper
Cattle
Hogs
Aluminum
Oil
Uranium
Lumber
Zinc
Nickel
Newsprint
Pulp
Natural Gas
-20%
0%
Source: TD Economics
20%
40%
60%
80%
100%
120%
140%
UNDERLYING COMMODITY STORY STILL POSITIVE
 Demand for commodities driven by China, India and other
emerging markets.
 Chinese commodity imports have strengthened in recent
months, supported in part by the appreciating renminbi
 Supply has remained constrained by deteriorating resource
quality, delays, rising costs (energy, labour, equipment) and
geopolitical risk
 Commodities increasingly viewed as an alternative store of
value
U.S. TREND GROWTH TO AVERAGE CLOSE
TO 2%
4
Real GDP, Y/Y % change
U.S. long-term trend rate
3
2
1
0
-1
-2
-3
-4
2007
2009
2011
Forecast by TD Economics as at September 2011
Source: Bureau of Economic Analysis
2013
2015
CANADIAN EXPORTS TIED TO U.S.
FORTUNES
Canadian Exports by Destination (2011)
US (73%)
UK (4.4%)
EU excl UK (4.7%)
Japan (2%)
Other OECD
countries (4.3%)
Other countries
(12%)
Source: Statistics Canada, TD Economics
CANADIAN DOLLAR WILL REMAIN
COMPETITIVE CHALLENGE
110
US$/C$, Cents
100
90
Forecast
80
70
60
50
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Forecast by TD Economics as at September 2011
Source: Bank of Canada, TD Economics
EMERGING MARKETS COOLING BUT REMAIN
STRONG
12
Real GDP, Annual Avg. % Chg.
10
2010
2011 F
2012 F
8
6
4
2
0
Advanced
Brazil
Forecast by TD Economics as at September 2011
Source: IMF, National Statistics Agencies, TD Economics
India
China
SUPPORTIVE TO COMMODITIES
400
Index, 2002=100
US$/C$ Cents
110
105
350
100
300
250
95
TD Commodity Price
Index* (lhs)
90
85
200
80
Forecast
75
150
70
100
C$ (rhs)
50
65
60
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
*TD Commodity Price Index of 18 Canadian resource commodity prices in US$
Source: WSJ, TD Economics, Forecast by TD Economics as at September 2011
CANADIAN GOVERNMENTS TURNING THEIR
ATTENTION TO DEFICIT FIGHTING
2011-12 Government Balance as a % of GDP*
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
Fed.
Prov.
Total
BC
AB
SK
MB
*Forecast by TD Economics as at September 2011
Source: Government Budgets 2011, TD Economics
ON
QC
NB
NS
PEI
NL
DOMESTIC DEMAND SHOULD REMAIN SOLID
Domestic demand, Y/Y % Chg.
5
Forecast
4
3
2
1
0
-1
-2
-3
2007
2008
2009
2010
2011
Forecast by TD Economics as at September 2011
Source: Haver, TD Economics
2012
2013
2014
2015
CANADIAN CONSUMERS HEAVILY INDEBTED
Household Debt to Personal Disposable Income, %
180
160
United States
140
120
100
Canada
80
60
1990
1992
1994
1996
1998
2000
Source: Statistics Canada, TD Economics
2002
2004
2006
2008
2010
CANADIAN HOUSING ACTIVITY HAS COOLED
C$
Units
400,000
140,000
380,000
360,000
120,000
Forecast*
340,000
320,000
100,000
300,000
280,000
80,000
Sales (left axis)
260,000
Average price (right axis)
60,000
Q1-06
240,000
Q1-07
Q1-08
Q1-09
Q1-10
*Forecast by TD Economics as at September 2011
Source: CREA, TD Economics
Q1-11
Q1-12
HOME CONSTRUCTION WILL SOFTEN
Housing starts, thousands
240
220
Forecast
200
180
160
140
120
2000
2002
2004
2006
Forecast by TD Economics as at September 2011
Source: CMHC / Haver Analytics
2008
2010
2012
OUTLOOK FOR MODEST ECONOMIC
GROWTH NATIONALLY
8
Canadian Real GDP, Annualized Quarter/Quarter % Change
6
Forecast
4
2
0
-2
-4
-6
-8
2009
2010
2011
Forecast by TD Economics as at September 2011
Source: Statistics Canada/Haver Analytics
2012
2013
PRAIRIES TO OUTPERFORM
Real GDP Growth By Region, Y/Y % Chg.
2.1
Atlantic
1.7
2011F
2012F
1.8
Quebec
1.8
2.3
Ontario
2.1
2.1
Manitoba
1.7
2.8
Saskatchewan
2.3
2.9
Alberta
2.4
1.9
B.C.
1.9
Forecast by TD Economics as at September 2011
Source: Statistics Canada/Haver Analytics
SLACK IN ECONOMY WILL ONLY
GRADUALLY DIMINISH
Output gap, %
3
Excess
Demand
Full Capacity
2
1
0
-1
-2
-3
Forecast
Excess
Supply
-4
-5
1992
1994
1996
1998
2001
2003
2005
Forecast by TD Economics as at September 2011
Source: TD Economics, Statistics Canada, Bank of Canada
2007
2010
2012
2014
INTEREST RATES TO REMAIN LOW FOR
LONGER
%
7.0
Forecast
6.0
10-yr Gov't Bond Yield
5.0
4.0
3.0
2.0
3-mo. T-Bill yield
1.0
0.0
Mar-02
Dec-04
Sep-07
Forecast by TD Econimics as at September 2011
Source: Bank of Canada/Haver Analytics
Jun-10
Mar-13
KEY TAKE AWAYS
 RISK FILLED ENVIRONMENT, BUT RISKS NOT
ALL ON THE DOWNSIDE
 MODERATE BUT SLOWER GROWTH TO
FACING CANADA’S ECONOMY IN 2012
 COMMODITY PRICES TO STAY RELATIVELY
HIGH
 INTEREST RATES TO REMAIN LOWER FOR
LONGER
HIGHLIGHTS
 Aboriginal people’s economic footprint is increasing.
 Combined household, business and government market income to
reach:
̶ $24 billion in 2011; and
̶ $32 billion in 2016.
 Economic development corporations, in particular, have helped
contribute to the surge.
 Market represents lucrative opportunities for all Canadian businesses.
 Challenges remain on tap, including boosting education attainment
levels.
ABORIGINAL MARKET INCOME BY SECTOR
35,000
30,000
$, millions
Discretionary Government
Revenues
Business Income
25,000
Personal Income
20,000
15,000
10,000
5,000
0
2001
2006
2011F
Note: Forecasts by TD Economics as at June 2011.
Source: Statistics Canada, Federal and Provincial Public Accounts.
2016F
EVEN WITH RECENT GAINS, LIVING
STANDARDS CONTINUE TO LAG BEHIND
70,000
$
60,000
Aboriginal Income Per Capita
Nominal GDP Per Capita
50,000
40,000
30,000
20,000
10,000
0
2001
2006
Note: Forecasts by TD Economics as at June 2011.
Source: Statistics Canada, Government Public Accounts.
2011F
2016F
OTHER CHALLENGES STILL REMAIN
 Individuals and communities are still recovering from the aftermath
of the global economic downturn.
 Average personal income for Aboriginal people remains noticeably
lower than the national average.
 Education attainment levels among Aboriginal people continue to
trail the national average. Further attention to this issue is needed.
 Lack of data availability and inconsistency of data limit accurate
policy analysis of the complex issues at hand.
TD Economics
www.td.com/economics
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