The Economic Outlook Derek Burleton Vice President and Deputy Chief Economist October 2011.

The Economic Outlook

Derek BurletonVice President and Deputy Chief Economist

October 2011

GUT-WRENCHING VOLATILITYGUT-WRENCHING VOLATILITY

11,000

11,500

12,000

12,500

13,000

13,500

14,000

14,500

Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Aug-11 Sep-11 Oct-11

1,000

1,100

1,200

1,300

1,400

S&P TSX (lhs)

S&P 500 (rhs)

Index Index

Source: WSJ, Haver, Bloomberg*Last plotted: October 19th 2011

CHINA TO HELP KEEP WORLD GROWTH EXPANDING MODERATELYCHINA TO HELP KEEP WORLD GROWTH EXPANDING MODERATELY

-2

0

2

4

6

8

10

12

14

2000 2002 2004 2006 2008 2010 2012

-2

0

2

4

6

8

10

12

14

World

China

Y/Y % Chg. Y/Y % Chg.

Forecast by TD Economics as at September 2011; Source: IMF, TD Economics

MAJOR GLOBAL ECONOMIC AND FINANCIAL RISKSMAJOR 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 UPCOMMODITY PRICES HAVE TRENDED UP

0

50

100

150

200

250

300

350

400

2005 2006 2007 2008 2009 2010 2011F

0

50

100

150

200

250

300

350

400

Overall TDCI

TDCI Ex. Energy

Index, 1997=100

* Index of 18 Canadian resource commodity prices in US$Source: TD Economics; Last plotted: Q2/2011

Index, 1997=100

PRECIOUS METALS HAVE TOPPED THE LIST OF GAINERSPRECIOUS METALS HAVE TOPPED THE LIST OF GAINERS

-20% 0% 20% 40% 60% 80% 100% 120% 140%

Natural GasPulp

NewsprintNickel

ZincLumber

UraniumOil

AluminumHogs

CattleCopperBarley

CanolaWheat

CoalGold

Silver

Source: TD Economics

% Chg. Between August 2010 to August 2011

UNDERLYING COMMODITY STORY STILL POSITIVE 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%U.S. TREND GROWTH TO AVERAGE CLOSE TO 2%

-4

-3

-2

-1

0

1

2

3

4

2007 2009 2011 2013 2015

Real GDP, Y/Y % change

Forecast by TD Economics as at September 2011Source: Bureau of Economic Analysis

U.S. long-term trend rate

CANADIAN EXPORTS TIED TO U.S. FORTUNESCANADIAN EXPORTS TIED TO U.S. FORTUNES

US (73%)

Other countries (12%)

UK (4.4%)

EU excl UK (4.7%)

Japan (2%)

Other OECD countries (4.3%)

Canadian Exports by Destination (2011)

Source: Statistics Canada, TD Economics

CANADIAN DOLLAR WILL REMAIN COMPETITIVE CHALLENGECANADIAN DOLLAR WILL REMAIN COMPETITIVE CHALLENGE

50

60

70

80

90

100

110

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US$/C$, Cents

Forecast by TD Economics as at September 2011Source: Bank of Canada, TD Economics

Forecast

EMERGING MARKETS COOLING BUT REMAIN STRONGEMERGING MARKETS COOLING BUT REMAIN STRONG

0

2

4

6

8

10

12

Advanced Brazil India China

2010 2011 F 2012 F

Forecast by TD Economics as at September 2011Source: IMF, National Statistics Agencies, TD Economics

Real GDP, Annual Avg. % Chg.

SUPPORTIVE TO COMMODITIESSUPPORTIVE TO COMMODITIES

50

100

150

200

250

300

350

400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

60

65

70

75

80

85

90

95

100

105

110

*TD Commodity Price Index of 18 Canadian resource commodity prices in US$Source: WSJ, TD Economics, Forecast by TD Economics as at September 2011

TD Commodity Price Index* (lhs)

Forecast

Index, 2002=100 US$/C$ Cents

C$ (rhs)

CANADIAN GOVERNMENTS TURNING THEIR ATTENTION TO DEFICIT FIGHTINGCANADIAN GOVERNMENTS TURNING THEIR ATTENTION TO DEFICIT FIGHTING

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Fed. Prov.Total

BC AB SK MB ON QC NB NS PEI NL

2011-12 Government Balance as a % of GDP*

*Forecast by TD Economics as at September 2011Source: Government Budgets 2011, TD Economics

DOMESTIC DEMAND SHOULD REMAIN SOLIDDOMESTIC DEMAND SHOULD REMAIN SOLID

-3

-2

-1

0

1

2

3

4

5

2007 2008 2009 2010 2011 2012 2013 2014 2015

Domestic demand, Y/Y % Chg.

Forecast by TD Economics as at September 2011Source: Haver, TD Economics

Forecast

CANADIAN CONSUMERS HEAVILY INDEBTEDCANADIAN CONSUMERS HEAVILY INDEBTED

60

80

100

120

140

160

180

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Household Debt to Personal Disposable Income, %

Canada

United States

Source: Statistics Canada, TD Economics

CANADIAN HOUSING ACTIVITY HAS COOLEDCANADIAN HOUSING ACTIVITY HAS COOLED

60,000

80,000

100,000

120,000

140,000

Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12

240,000

260,000

280,000

300,000

320,000

340,000

360,000

380,000

400,000

Sales (left axis)

Average price (right axis)

*Forecast by TD Economics as at September 2011Source: CREA, TD Economics

Forecast*

C$Units

HOME CONSTRUCTION WILL SOFTENHOME CONSTRUCTION WILL SOFTEN

120

140

160

180

200

220

240

2000 2002 2004 2006 2008 2010 2012

Forecast by TD Economics as at September 2011Source: CMHC / Haver Analytics

Housing starts, thousands

Forecast

OUTLOOK FOR MODEST ECONOMIC GROWTH NATIONALLYOUTLOOK FOR MODEST ECONOMIC GROWTH NATIONALLY

-8

-6

-4

-2

0

2

4

6

8

2009 2010 2011 2012 2013

Forecast by TD Economics as at September 2011Source: Statistics Canada/Haver Analytics

Forecast

Canadian Real GDP, Annualized Quarter/Quarter % Change

PRAIRIES TO OUTPERFORMPRAIRIES TO OUTPERFORM

2.1

1.8

2.3

2.1

2.8

2.9

1.9

1.7

1.8

2.1

1.7

2.3

2.4

1.9

Atlantic

Quebec

Ontario

Manitoba

Saskatchewan

Alberta

B.C.

2011F

2012F

Forecast by TD Economics as at September 2011Source: Statistics Canada/Haver Analytics

Real GDP Growth By Region, Y/Y % Chg.

SLACK IN ECONOMY WILL ONLY GRADUALLY DIMINISHSLACK IN ECONOMY WILL ONLY GRADUALLY DIMINISH

-5

-4

-3

-2

-1

0

1

2

3

1992 1994 1996 1998 2001 2003 2005 2007 2010 2012 2014

Full Capacity Excess Demand

ExcessSupply

Forecast by TD Economics as at September 2011Source: TD Economics, Statistics Canada, Bank of Canada

Forecast

Output gap, %

INTEREST RATES TO REMAIN LOW FOR LONGERINTEREST RATES TO REMAIN LOW FOR LONGER

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Mar-02 Dec-04 Sep-07 Jun-10 Mar-13

Forecast by TD Econimics as at September 2011Source: Bank of Canada/Haver Analytics

%

10-yr Gov't Bond Yield

3-mo. T-Bill yield

Forecast

KEY TAKE AWAYSKEY 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

HIGHLIGHTSHIGHLIGHTS

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 SECTORABORIGINAL MARKET INCOME BY SECTOR

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2001 2006 2011F 2016F

Discretionary GovernmentRevenues

Business Income

Personal Income

$, millions

Note: Forecasts by TD Economics as at June 2011.Source: Statistics Canada, Federal and Provincial Public Accounts.

EVEN WITH RECENT GAINS, LIVING STANDARDS CONTINUE TO LAG BEHINDEVEN WITH RECENT GAINS, LIVING STANDARDS CONTINUE TO LAG BEHIND

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2001 2006 2011F 2016F

Aboriginal Income Per Capita

Nominal GDP Per Capita

Note: Forecasts by TD Economics as at June 2011.Source: Statistics Canada, Government Public Accounts.

$

OTHER CHALLENGES STILL REMAINOTHER 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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