Long-Term Forecast

Leslie Preston, Senior Economist | 416-983-7053

Sri Thanabalasingam, Senior Economist | 416-413-3117

Date Published: October 4, 2021

Download

Print Version

Share this:

United States

  • A pandemic-induced 3.5% contraction in economic growth in 2020 will be more than offset by an impressive 5.6% rebound this year. And, the boost from fiscal policy may not yet be done. It is likely that the Biden administration will enact more spending on infrastructure and other measures, keeping U.S. growth above trend through 2023.
  • The pandemic lifted the unemployment rate to an historic level, but it has since made notable progress. Unfortunately, this masks underlying concerns, as a large number of people have dropped out of the labor force, and improvement has been halting. We expect that above-trend growth will push the unemployment rate below its pre-pandemic low in 2023.
  • 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 levels to more historical levels is anticipated over the next few years, helping to boost labor force growth over the forecast horizon.
  • In the face of the crisis, the FOMC took its policy rate to the zero-lower bound, and enacted substantial monetary stimulus. We expect the FOMC to raise the policy rate in late-2022, and reach 2.0% in mid-2024, where it is expected to remain over the forecast horizon.

Canada

  • After a difficult second quarter, reopening of the economy is setting the stage for a solid pick up in economic growth in the third quarter. While the Delta variant poses a risk in the fourth, mitigating measures such as vaccine passport should keep the economy on the road to recovery.  
  • As we get past the fourth wave, strong economic momentum will likely flow through to 2022. GDP growth is anticipated to reach 4.4% as the economy continues to rebuild and is aided by fiscal stimulus from both federal and provincial governments. This will contribute to a continual improvement of the unemployment rate through the year.
  • Given the ongoing recovery and rising inflation, the Bank of Canada will continue to taper the asset purchases program later this year and move onto the reinvestment phase early next year. As for the overnight rate, we expect the Bank will raise rates in the second half of 2022, with a risk of an earlier lift off should inflation and risk-assets remain elevated.     

Tables


U.S. Economic Outlook

Economic Indicator Annual Average Fourth Quarter / Fourth Quarter
21F 22F 23F 24F 25F 26F 27F 21F 22F 23F 24F 25F 26F 27F
 Real GDP 5.6 4.1 2.6 1.9 1.7 1.6 1.5 5.2 3.5 2.3 1.8 1.7 1.5 1.4
                             
 Consumer Expenditure 7.7 2.9 2.3 1.9 1.9 1.9 1.9 6.5 2.5 2.1 1.9 1.9 1.9 1.9
Durable Goods             18.0 -2.4 1.1 2.1 3.2 3.4 3.5 6.2 0.5 1.5 2.6 3.4 3.5 3.5
                             
 Business Investment 7.7 5.9 4.1 2.9 2.4 2.2 2.0 7.9 5.4 3.6 2.6 2.3 2.1 2.0
Non-Res. Structures -7.1 0.6 1.4 3.3 3.7 2.9 2.0 0.8 0.6 2.2 3.8 3.5 2.4 1.9
Equipment & IPP* 11.7 7.2 4.7 2.8 2.1 2.0 2.1 9.6 6.5 3.8 2.4 2.1 2.0 2.1
                             
 Residential Investment 8.8 -2.7 0.1 0.0 0.3 0.4 0.4 -3.0 0.0 0.0 0.1 0.4 0.4 0.4
 Govt. Expenditure 1.0 1.7 1.4 1.1 0.9 0.9 0.6 1.6 1.7 1.5 0.9 1.0 0.7 0.6
 Final Domestic Demand 6.5 2.8 2.3 1.9 1.7 1.7 1.7 5.4 2.6 2.1 1.7 1.7 1.7 1.6
                             
 Exports                   4.7 6.9 7.0 5.0 4.0 3.6 3.6 3.7 7.5 6.2 4.5 3.7 3.6 3.6
 Imports                   12.0 4.6 5.0 3.7 3.3 3.4 3.6 3.9 6.4 4.4 3.4 3.3 3.5 3.6
                             
 Change in Private                            
 Inventories -90.5 92.0 132.7 126.7 114.6 97.7 70.0 --- --- --- --- --- --- ---
 Final Sales 5.6 3.0 2.4 1.9 1.8 1.7 1.6 5.4 2.6 2.2 1.8 1.8 1.6 1.6
                             
 International Current                            
 Account Balance ($Bn)  -721 -667 -660 -568 -485 -414 -365 --- --- --- --- --- --- ---
% of GDP  -3.1 -2.7 -2.6 -2.1 -1.7 -1.4 -1.2 --- --- --- --- --- --- ---
 Pre-tax Corporate Profits                            
 including IVA&CCA 19.2 4.1 0.9 1.6 2.3 2.8 2.2 11.5 2.8 1.3 2.0 2.6 2.7 2.0
% of GDP  11.7 11.3 10.9 10.6 10.4 10.3 10.1 --- --- --- --- --- --- ---
 GDP Deflator (y/y) 3.9 3.2 2.2 2.3 2.4 2.3 2.2 4.9 2.3 2.2 2.4 2.4 2.3 2.2
 Nominal GDP  9.7 7.4 4.9 4.3 4.1 4.0 3.7 10.4 5.9 4.5 4.2 4.1 3.9 3.7
                             
 Labor Force 0.4 2.0 1.3 0.8 0.7 0.7 0.7 1.2 1.8 1.0 0.7 0.7 0.7 0.6
 Employment  2.7 3.7 1.6 0.7 0.4 0.4 0.5 4.1 3.0 1.0 0.5 0.4 0.4 0.5
 Change in Empl. ('000s)  3,789 5,437 2,494 1,049 652 628 712 5,907 4,418 1,494 849 612 653 763
 Unemployment Rate (%)  5.6 4.0 3.4 3.4 3.6 3.8 3.9 --- --- --- --- --- --- ---
 Personal Disp. Income  4.9 -0.4 5.0 4.8 4.6 4.4 4.2 2.9 4.4 4.9 4.7 4.5 4.3 4.2
 Pers. Savings Rate (%)  11.5 6.1 6.7 7.4 7.9 8.3 8.5 --- --- --- --- --- --- ---
 Cons. Price Index (y/y) 4.3 3.0 2.2 2.1 2.1 2.1 2.1 5.1 2.2 2.1 2.2 2.1 2.1 2.1
 Core CPI (y/y) 3.4 3.4 2.5 2.4 2.4 2.3 2.2 4.4 2.7 2.4 2.4 2.4 2.3 2.2
 Core PCE Price Index (y/y) 3.2 3.0 2.3 2.2 2.2 2.1 2.0 4.0 2.5 2.2 2.2 2.2 2.1 2.0
 Housing Starts (mns)  1.57 1.50 1.48 1.47 1.47 1.47 1.47 --- --- --- --- --- --- ---
 Real Output per hour** (y/y) 1.8 0.8 1.4 1.8 1.7 1.5 1.2 1.5 0.8 1.8 1.8 1.6 1.4 1.1
                             
*Intellectual property products. F: Forecast by TD Economics as at September 2021.
**Non-farm business sector. 

Canadian Economic Outlook

Period-Over-Period Annualized Per Cent Change Unless Otherwise Indicated
Economic Indicator                 Annual Average 4th Quarter / 4th Quarter
21F 22F 23F 24F 25F 26F 27F 21F 22F 23F 24F 25F 26F 27F
  Real GDP 4.9 4.4 2.8 1.7 1.7 1.7 1.7 3.2 4.6 2.0 1.6 1.7 1.7 1.7
                             
Consumer Expenditure 4.3 4.9 3.7 1.9 1.7 1.8 1.8 3.5 5.0 2.7 1.7 1.8 1.8 1.8
Durable Goods             11.5 1.1 1.9 1.6 1.6 1.7 1.7 -1.2 2.3 1.7 1.5 1.7 1.7 1.7
                             
Business Investment 1.5 7.1 5.0 2.9 2.4 2.5 2.6 5.6 6.6 4.1 2.4 2.4 2.5 2.6
Non-Res. Structures -4.3 6.4 5.9 3.3 2.4 2.5 2.5 4.4 6.9 5.3 2.4 2.4 2.5 2.5
Equipment & IPP* 7.7 7.8 4.1 2.5 2.5 2.5 2.6 6.8 6.2 2.9 2.5 2.5 2.5 2.6
                             
Residential Investment 18.8 -0.6 1.4 1.6 1.8 1.8 1.8 4.3 1.7 1.3 1.8 1.8 1.8 1.8
Govt. Expenditure 6.3 3.3 1.8 1.8 1.8 1.8 1.8 5.6 2.0 1.8 1.8 1.8 1.8 1.8
   Final Domestic Demand 5.7 4.2 3.1 1.9 1.8 1.9 1.9 4.3 4.1 2.5 1.8 1.8 1.9 1.9
                             
Exports                   1.9 7.6 4.3 2.7 2.4 2.3 2.2 1.1 8.2 3.2 2.4 2.4 2.2 2.2
Imports                   7.9 8.9 5.5 3.3 2.8 2.8 2.8 6.2 8.1 4.5 2.8 2.8 2.8 2.8
                             
Change in Non-farm                            
Inventories (2012 $Bn) 3.5 15.5 18.9 19.1 19.0 19.0 19.0 -- -- -- -- -- -- --
   Final Sales 4.7 3.6 3.0 1.9 1.8 1.9 1.9 3.9 3.5 2.5 1.8 1.8 1.9 1.9
                             
International Current                            
Account Balance ($Bn)  14.7 17.0 7.1 3.7 3.1 1.6 -0.8 -- -- -- -- -- -- --
% of GDP  0.6 0.6 0.3 0.1 0.1 0.1 0.0 -- -- -- -- -- -- --
Pre-tax Corp. Profits 37.6 2.0 1.3 1.5 3.1 3.2 3.2 21.1 2.4 0.9 2.1 3.2 3.2 3.2
% of GDP  15.5 14.7 14.3 14.0 13.9 13.8 13.8 -- -- -- -- -- -- --
  GDP Deflator (y/y) 7.4 2.6 1.9 1.9 1.9 2.0 2.0 6.8 1.9 1.9 1.9 2.0 1.9 2.0
  Nominal GDP  12.6 7.1 4.8 3.6 3.6 3.6 3.7 10.2 6.6 4.0 3.6 3.6 3.6 3.7
                             
  Labour Force 2.2 1.4 0.8 0.6 0.6 0.6 0.6 0.8 1.4 0.6 0.6 0.6 0.6 0.6
  Employment  4.5 3.0 1.3 0.5 0.6 0.6 0.6 3.1 2.4 0.8 0.4 0.6 0.6 0.6
  Change in Empl. ('000s)  808 566 262 89 116 125 126 580 452 147 86 124 125 126
  Unemployment Rate (%)  7.5 6.1 5.6 5.7 5.7 5.7 5.7 -- -- -- -- -- -- --
  Personal Disp. Income  2.0 1.5 3.6 3.5 3.6 3.6 3.6 -0.1 5.3 3.2 3.6 3.6 3.6 3.6
  Pers. Savings Rate (%)  11.0 5.4 3.2 2.9 2.7 2.6 2.4 -- -- -- -- -- -- --
  Cons. Price Index (y/y) 3.1 2.9 2.2 2.0 2.0 2.0 2.0 4.0 2.2 2.1 2.0 2.0 2.0 2.0
  CPIX (y/y) ** 2.8 3.1 2.2 2.0 2.0 2.0 2.0 3.8 2.3 2.1 2.0 2.0 2.0 2.0
  BoC Inflation (y/y) ** 2.4 2.4 2.1 2.0 2.0 2.0 2.0 2.8 2.2 2.0 2.0 2.0 2.0 2.0
  Housing Starts ('000s) 273 215 208 210 212 214 215 -- -- -- -- -- -- --
  Home Prices (y/y) 20.8 1.8 0.7 0.9 1.1 1.3 1.3 12.6 1.0 0.7 0.9 1.3 1.3 1.3
  Real GDP / worker (y/y) 0.4 1.3 1.5 1.2 1.1 1.0 1.0 0.1 2.2 1.3 1.2 1.0 1.0 1.0
                             
F: Forecast by TD Economics as at September 2021.
* 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.
Sources: Statistics Canada, Bank of Canada, CMHC, CREA, TD Economics.

 

Interest Rates

Interest Rates Annual Average End of Period
21F 22F 23F 24F 25F 26F 27F 21F 22F 23F 24F 25F 26F 27F
U.S. FIXED INCOME                            
   Fed Funds Target Rate (%)* 0.25 0.30 1.15 1.95 2.00 2.00 2.00 0.25 0.50 1.50 2.00 2.00 2.00 2.00
   3-mth T-Bill Rate (%) 0.05 0.30 1.20 1.85 1.90 1.90 1.90 0.10 0.55 1.55 1.90 1.90 1.90 1.90
   2-yr Govt. Bond Yield (%) 0.30 1.10 1.75 1.95 1.95 1.95 1.95 0.50 1.40 1.90 1.95 1.95 1.95 1.95
   5-yr Govt. Bond Yield (%) 0.90 1.60 2.00 2.05 2.05 2.05 2.05 1.10 1.80 2.05 2.05 2.05 2.05 2.05
   10-yr Govt. Bond Yield (%) 1.60 2.15 2.30 2.20 2.20 2.20 2.20 1.85 2.30 2.25 2.20 2.20 2.20 2.20
  10-yr-2-yr Govt. Spread (%) 1.30 1.05 0.55 0.25 0.25 0.25 0.25 1.35 0.90 0.35 0.25 0.25 0.25 0.25
                             
CANADIAN FIXED INCOME                            
   Overnight Target Rate (%) 0.25 0.30 1.15 1.75 1.75 1.75 1.75 0.25 0.50 1.50 1.75 1.75 1.75 1.75
   3-mth T-Bill Rate (%) 0.15 0.35 1.25 1.75 1.75 1.75 1.75 0.18 0.63 1.63 1.75 1.75 1.75 1.75
   2-yr Govt. Bond Yield (%) 0.45 1.20 1.75 1.85 1.85 1.85 1.85 0.65 1.45 1.85 1.85 1.85 1.85 1.85
   5-yr Govt. Bond Yield (%) 0.95 1.55 1.90 1.95 1.95 1.95 1.95 1.10 1.75 1.95 1.95 1.95 1.95 1.95
  10-yr Govt. Bond Yield (%) 1.45 2.10 2.25 2.10 2.10 2.10 2.10 1.75 2.20 2.20 2.10 2.10 2.10 2.10
  10-yr-2-yr Govt. Spread (%) 1.00 0.90 0.50 0.25 0.25 0.25 0.25 1.10 0.75 0.35 0.25 0.25 0.25 0.25
                             
*Upper bound of target range. F: Forecast by TD Economics as at September 2021.  
Annual averages are the average of the four quarterly end-of-period forecasts.  

 

Disclaimer