Long-Term Forecast

Leslie Preston, Senior Economist | 416-983-7053

James Orlando, CFA, Senior Economist | 416-413-3180

Date Published: March 18, 2022

Download

Print Version

Share this:

United States

  • After the strongest annual average growth in nearly 40 years (5.7%) in 2021, U.S. economic growth is set to slow to a still healthy 3.5% pace in 2022. Economic growth is expected to remain solid in 2023, at 2.5%, before slowing towards its trend pace of 1.8% thereafter. 
  • The pandemic lifted the unemployment rate to an historic level, but has since reversed the lion’s share of the rise. Due to the  large number of people who have left the labor force, the labor market is proving tighter than previously expected. We expect that above-trend growth will push the unemployment rate below its pre-pandemic low in mid-2022.
  • Labor force growth has also taken a hit from reduced immigration during the pandemic and the implementation of policies under the previous administration. A return of immigration to more historical levels is anticipated over the next few years, helping to boost labor force growth over the next few years.
  • The FOMC has begun the process of normalizing monetary policy from the hyper-stimulative settings of earlier in the pandemic. We expect the U.S. central bank to raise the policy rate to 2.25% by the second quarter of 2023. That is about our estimation of the neutral rate (2%), and so we expect the Fed to ease rates back to neutral further out in the forecast, once inflation has been contained. 

Canada

  • Canadian economic growth surprised on the upside in the final quarter of last year, growing by 6.7% annualized and providing a strong hand-off into 2022. We expect annual average real GDP growth of 4.0% in 2022, slowing to roughly 3% in 2023, and then declining to 1.7% over the long-term.
  • The unemployment rate is expected to continue to decline over the coming quarters, with an expected trough of just over 5%. Given strong immigration expectations over the coming years, we see labour force growth outpacing employment growth, which will cause the unemployment rate to gradually move towards 5.9%.
  • Inflation will likely hit new highs in the near term, as food prices and energy costs drive headline figures. While a gradual moderation is expected over the course of this year, inflation is likely to remain above 2% until mid-2023.
  • With the economy rebounding and inflation well above target, the Bank of Canada is set to continue raising rates at an aggressive pace, such that the policy rate reaches a high of 2% by early 2023.   

Tables


U.S. Economic Outlook 
Period-Over-Period Annualized Per Cent Change Unless Otherwise Indicated

*Intellectual property products. F: Forecast by TD Economics as at March 2022.
**Non-farm business sector.
Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Census Bureau, TD Economics.
Economic Indicator Annual Average Fourth Quarter / Fourth Quarter
21 22F 23F 24F 25F 26F 27F 21 22F 23F 24F 25F 26F 27F
 Real GDP 5.7 3.2 2.5 1.9 1.8 1.8 1.8 5.6 2.3 2.2 1.8 1.8 1.8 1.8
                             
 Consumer Expenditure 7.9 2.9 2.3 2.3 2.0 2.0 1.9 7.0 2.1 2.5 2.1 2.0 1.9 1.9
Durable Goods             18.1 -2.0 0.2 3.8 3.0 3.1 2.9 6.7 -1.0 3.0 3.7 2.9 3.1 2.8
                             
 Business Investment 7.4 6.0 3.8 2.7 2.3 2.2 2.2 6.6 6.3 3.3 2.4 2.3 2.2 2.1
Non-Res. Structures -8.1 -1.6 3.5 3.0 2.9 2.8 2.3 -2.9 2.4 3.1 3.0 2.9 2.8 2.0
Equipment & IPP* 11.6 7.9 3.9 2.6 2.1 2.1 2.2 9.0 7.2 3.4 2.2 2.1 2.1 2.2
                             
 Residential Investment 9.1 -1.2 -1.0 0.5 -0.1 -0.2 -0.1 -1.7 -0.4 0.2 0.0 0.1 -0.4 0.4
 Govt. Expenditure 0.5 -0.1 1.1 1.0 0.8 0.8 0.5 0.1 0.8 1.1 0.8 0.9 0.6 0.5
 Final Domestic Demand 6.6 2.6 2.1 2.0 1.7 1.7 1.6 5.4 2.3 2.3 1.8 1.8 1.7 1.6
                             
 Exports                   4.6 6.4 5.0 3.5 3.5 3.5 3.4 5.2 4.9 4.0 3.5 3.5 3.4 3.4
 Imports                   14.0 6.9 1.9 2.9 2.5 2.3 1.8 9.6 2.8 3.1 2.6 2.4 2.1 1.9
                             
 Change in Private                            
 Inventories -38.1 125.0 124.0 104.0 91.3 86.8 84.7 --- --- --- --- --- --- ---
 Final Sales 5.4 2.4 2.5 2.1 1.8 1.8 1.8 4.7 2.5 2.3 1.9 1.9 1.8 1.8
                             
 International Current                            
 Account Balance ($Bn)  -813 -890 -709 -619 -563 -509 -433 --- --- --- --- --- --- ---
% of GDP  -3.5 -3.5 -2.7 -2.2 -2.0 -1.7 -1.4 --- --- --- --- --- --- ---
 Pre-tax Corporate Profits                            
 including IVA&CCA 24.2 4.4 4.8 5.0 5.0 5.0 5.2 17.7 3.4 4.6 5.2 5.4 5.0 5.0
% of GDP  12.1 11.6 11.5 11.6 11.7 11.8 11.9 --- --- --- --- --- --- ---
 GDP Deflator (y/y) 4.2 5.9 3.0 2.4 2.3 2.2 2.1 5.9 4.9 2.6 2.3 2.3 2.1 2.1
 Nominal GDP  10.1 9.2 5.6 4.4 4.1 4.0 4.0 11.8 7.1 4.9 4.2 4.1 4.0 3.9
                             
 Labor Force 0.3 2.3 1.2 0.7 0.5 0.5 0.4 0.8 2.4 1.0 0.6 0.5 0.5 0.4
 Employment  2.8 3.8 1.5 0.5 0.4 0.4 0.5 4.3 2.8 0.9 0.4 0.4 0.5 0.5
 Change in Empl. ('000s)  3,957 5,586 2,221 752 548 682 750 6,169 4,222 1,410 606 549 756 749
 Unemployment Rate (%)  5.4 3.6 3.5 3.8 4.0 4.0 4.0 --- --- --- --- --- --- ---
 Personal Disp. Income  6.1 1.0 5.9 5.2 4.3 4.1 4.0 5.3 4.6 6.1 4.7 4.2 4.1 3.9
 Pers. Savings Rate (%)  12.1 5.4 6.4 7.2 7.5 7.6 7.7 --- --- --- --- --- --- ---
 Cons. Price Index (y/y) 4.7 7.0 2.4 2.0 2.1 2.0 2.1 6.7 5.2 2.1 1.9 2.2 2.0 2.1
 Core CPI (y/y) 3.6 5.5 3.1 2.4 2.4 2.2 2.2 5.0 4.8 2.7 2.3 2.3 2.2 2.1
 Core PCE Price Index (y/y) 3.3 5.0 2.9 2.1 2.1 2.0 1.9 4.6 4.5 2.4 2.1 2.1 2.0 1.9
 Housing Starts (mns)  1.60 1.59 1.56 1.55 1.52 1.49 1.47 --- --- --- --- --- --- ---
 Real Output per hour** (y/y) 1.8 0.2 1.3 2.0 1.8 1.6 1.6 1.9 -0.4 1.8 1.9 1.8 1.5 1.6
                             

Canadian Economic Outlook

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

F: Forecast by TD Economics as at March 2022. *Intellectual Property Products.
**CPIX: CPI ex. 8 most volatile components.
***BoC Inflation: avg. of CPI-trim, CPI-median, and CPI-common.
Home price measure shown is the CREA Composite Sale Price.
Source: Statistics Canada, Bank of Canada, CMHC, CREA, TD Economics
.
Economic Indicator                 Annual Average 4th Quarter / 4th Quarter
21 22F 23F 24F 25F 26F 27F 21 22F 23F 24F 25F 26F 27F
  Real GDP 4.6 3.9 3.0 2.0 1.7 1.5 1.7 3.3 3.7 2.4 1.9 1.5 1.5 1.7
                             
Consumer Expenditure 5.2 4.1 2.6 1.9 1.5 1.5 1.6 5.2 2.8 2.2 1.7 1.4 1.5 1.6
Durable Goods             7.7 -1.0 1.4 1.0 0.7 0.4 0.9 -5.3 1.3 1.2 1.0 0.5 0.5 1.1
                             
Business Investment 2.0 5.0 4.1 2.3 1.8 1.7 1.7 5.1 5.1 3.1 1.9 1.7 1.7 1.7
Non-Res. Structures -0.6 6.0 4.5 2.6 1.8 1.7 1.7 9.7 5.2 3.5 2.1 1.7 1.7 1.7
Equipment & IPP* 4.6 3.9 3.8 2.0 1.7 1.7 1.7 0.8 5.0 2.7 1.8 1.7 1.7 1.7
                             
Residential Investment 15.4 -2.6 1.4 1.7 1.7 1.7 1.7 -0.8 1.5 1.4 1.7 1.7 1.7 1.7
Govt. Expenditure 4.8 3.8 3.0 1.8 1.7 1.7 1.7 2.4 4.8 2.2 1.7 1.7 1.7 1.7
   Final Domestic Demand 5.5 3.5 2.8 1.9 1.6 1.6 1.6 3.8 3.4 2.3 1.7 1.6 1.6 1.7
                             
Exports                   1.4 5.8 3.7 2.0 1.7 1.7 1.7 0.8 5.8 2.4 1.9 1.7 1.7 1.7
Imports                   7.4 5.7 3.6 2.0 1.7 1.7 1.7 5.0 5.2 2.4 1.9 1.7 1.7 1.7
                             
Change in Non-farm                            
Inventories (2012 $Bn) 4.6 9.5 13.6 16.5 17.7 17.0 18.4 -- -- -- -- -- -- --
   Final Sales 4.5 3.0 2.6 1.8 1.6 1.6 1.6 3.1 3.3 2.1 1.6 1.6 1.6 1.6
                             
International Current                            
Account Balance ($Bn)  1.6 9.2 7.0 8.8 10.6 12.4 14.3 -- -- -- -- -- -- --
% of GDP  0.1 0.3 0.2 0.3 0.3 0.4 0.4 -- -- -- -- -- -- --
Pre-tax Corp. Profits 32.7 9.1 -2.1 -0.6 1.7 2.7 3.4 14.6 9.4 -3.1 0.6 2.2 3.0 3.5
% of GDP  15.2 15.1 14.1 13.4 13.2 13.1 13.0 -- -- -- -- -- -- --
  GDP Deflator (y/y) 8.2 5.5 2.0 2.0 2.0 2.0 2.0 8.7 3.9 2.0 2.0 2.0 2.0 2.0
  Nominal GDP  13.1 9.7 5.0 4.0 3.7 3.6 3.7 12.2 7.7 4.4 3.9 3.6 3.6 3.7
                             
  Labour Force 2.4 1.7 1.0 0.8 0.7 0.6 0.6 1.3 1.3 0.9 0.7 0.6 0.6 0.6
  Employment  4.8 3.9 1.0 0.4 0.5 0.6 0.6 4.2 2.4 0.6 0.4 0.6 0.6 0.6
  Change in Empl. ('000s)  867 733 203 88 101 122 122 779 457 120 78 116 122 123
  Unemployment Rate (%)  7.4 5.4 5.4 5.7 5.9 5.9 5.9 -- -- -- -- -- -- --
  Personal Disp. Income  2.9 2.7 4.2 3.8 3.6 3.5 3.6 2.7 5.4 4.1 3.7 3.5 3.5 3.6
  Pers. Savings Rate (%)  10.9 5.5 4.7 4.6 4.6 4.6 4.5 -- -- -- -- -- -- --
  Cons. Price Index (y/y) 3.4 5.0 2.1 2.0 2.0 2.0 2.0 4.7 3.7 2.1 2.0 2.0 2.0 2.0
  CPIX (y/y) ** 2.8 4.0 2.5 2.1 2.0 2.0 2.0 3.8 3.4 2.3 2.0 2.0 2.0 2.0
  BoC Inflation (y/y) ** 2.4 2.9 2.1 2.0 2.0 2.0 2.0 2.8 2.5 2.0 2.0 2.0 2.0 2.0
  Housing Starts ('000s) 277 231 220 217 218 220 220 -- -- -- -- -- -- --
  Home Prices (y/y) 22.5 15.6 1.0 0.8 1.8 2.4 2.4 19.4 9.6 1.1 1.1 2.1 2.4 2.4
  Real GDP / worker (y/y) -0.2 0.0 1.9 1.6 1.1 0.9 1.1 -0.9 1.3 1.8 1.5 1.0 0.9 1.1
                             

 

Interest Rates

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

*Upper bound of target range. F: Forecast by TD Economics as at March 2022. Annual averages are the average of the four quarterly end-of-period forecasts.
Source: Bank of Canada, Bloomberg, Statistics Canada, TD Economics.
Interest Rates Annual Average End of Period
21 22F 23F 24F 25F 26F 27F 21 22F 23F 24F 25F 26F 27F
U.S. FIXED INCOME                            
   Fed Funds Target Rate (%)* 0.25 1.25 2.20 2.05 2.00 2.00 2.00 0.25 1.75 2.25 2.00 2.00 2.00 2.00
   3-mth T-Bill Rate (%) 0.05 1.35 2.10 1.95 1.90 1.90 1.90 0.06 1.75 2.15 1.90 1.90 1.90 1.90
   2-yr Govt. Bond Yield (%) 0.35 1.95 2.05 1.95 1.95 1.95 1.95 0.73 2.05 2.00 1.95 1.95 1.95 1.95
   5-yr Govt. Bond Yield (%) 1.00 2.15 2.25 2.05 2.05 2.05 2.05 1.26 2.25 2.15 2.05 2.05 2.05 2.05
   10-yr Govt. Bond Yield (%) 1.55 2.30 2.40 2.20 2.20 2.20 2.20 1.52 2.40 2.30 2.20 2.20 2.20 2.20
  10-yr-2-yr Govt. Spread (%) 1.20 0.35 0.35 0.25 0.25 0.25 0.25 0.79 0.35 0.30 0.25 0.25 0.25 0.25
                             
CANADIAN FIXED INCOME                            
   Overnight Target Rate (%) 0.25 1.25 2.00 1.80 1.75 1.75 1.75 0.25 1.75 2.00 1.75 1.75 1.75 1.75
   3-mth T-Bill Rate (%) 0.15 1.40 2.00 1.80 1.75 1.75 1.75 0.16 1.88 2.00 1.75 1.75 1.75 1.75
   2-yr Govt. Bond Yield (%) 0.55 1.95 1.95 1.85 1.85 1.85 1.85 0.95 2.00 1.90 1.85 1.85 1.85 1.85
   5-yr Govt. Bond Yield (%) 1.10 2.10 2.15 1.95 1.95 1.95 1.95 1.25 2.20 2.05 1.95 1.95 1.95 1.95
  10-yr Govt. Bond Yield (%) 1.45 2.25 2.30 2.10 2.10 2.10 2.10 1.42 2.35 2.20 2.10 2.10 2.10 2.10
  10-yr-2-yr Govt. Spread (%) 0.90 0.30 0.35 0.25 0.25 0.25 0.25 0.47 0.35 0.30 0.25 0.25 0.25 0.25
                             

 

Disclaimer