Economic & Real Estate Outlook

Looking into the Crystal Ball

Sonya Gulati Senior Economist

February 2014

NO BOOM, BUT GLOBAL ECONOMY TO GAIN A STEP

-3

-2

-1

0

1

2

3

4

5

6

2000 2002 2004 2006 2008 2010 2012 2014F

Developing Economies

Advanced Economies

Annual contribution to world GDP growth, %

Source: IMF. Forecast by TD Economics as at December 2013.

Forecast

EMERGING ECONOMIES TO STABILIZE, ADVANCED ECONOMIES TO IMPROVE

-6

-4

-2

0

2

4

6

8

10

2002 2004 2006 2008 2010 2012 2014

Advanced Economies Developing Economics

Source: IMF. Forecast by TD Economics as at December 2013.

Forecast% chg, y/y

GDP Growth, YoY % Chg.

U.S. ECONOMIC GROWTH POISED TO ACCELERATE

-10

-8

-6

-4

-2

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015

Real GDP, annualized quarter/quarter % change

Last data point Q4, 2013. Forecast by TD Economics as of February 2014.Source: Bureau of Economic Analysis.

Recession

ForecastForecast Y/Y % Chg.

(Q4/Q4 % growth)2013E 1.9% (2.7)2014F 2.9% (2.8)2015F 3.1% (3.2)

STRONG FUNDAMENTALS SUPPORT HOUSING DEMAND

0

500

1,000

1,500

2,000

2,500

1980 1985 1990 1995 2000 2005 2010 2015

Demographic adjusted households + depreciation

Housing starts

Housing starts (units, 000s); change in households (000s)

Source: U.S. Census Bureau, TD Economics. Forecast as of December 2013.

Fcst.

FED TAPERING IS HERE, BUT TIGHTENING OF POLICY A LONG WAY OFF

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2007 2008 2009 2010 2011 2012 2013 2014

Mortgage backed securities

Treasury securities

Agency securities

Liquidity programs & other assets

Federal Reserve balance sheet, $U.S. (Trillions)

Source: Federal Reserve Board, TD Economics

Fcst.

GROWTH TO PICK UP IN CANADA, BUT NO BOOM ON THE HORIZON

-10

-8

-6

-4

-2

0

2

4

6

8

2008 2009 2010 2011 2012 2013 2014 2015

Real GDP, Annualized Q/Q % Chg.

Source: Statistics Canada, Haver Analytics. Forecast by TD Economics as of December 2013.

Recession

Forecast

Forecast Y/Y % Chg.2013E: 1.7% 2014F: 2.3% 2015F: 2.4%

CANADA IS COUNTING ON STRONGER EXPORTS

-20

-15

-10

-5

0

5

10

15

2002 2004 2006 2008 2010 2012 2014

Source: Statistics Canada/Haver Analytics.Forecast by TD Economics as of December 2013.

Forecast

Real Exports, Y/Y% Chg.

DECLINE IN LOONIE TO PERSIST, BUT STABILIZATION TO FOLLOW IN 2015

0.60

0.70

0.80

0.90

1.00

1.10

2002 2004 2006 2008 2010 2012 2014

US$/C$

Forecast

Source: Bank of Canada; Forecast by TD Economics as of January 2014.

BUSINESS INVESTMENT TO STRENGTHEN IN LOCKSTEP

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

2005 2006 2007 2008 2009 2010 2011 2012 2013

Machinery & Equipment Nonresidential Structures

Source: Statistics Canada. Forecast by TD Economics as at December 2013.

Business Investment as a Percentage of Real GDP

CANADIANS ARE BECOMING MORE FRUGAL

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

140

160

180

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Household Debt-to-Income Ratio (lhs)

Household Debt Growth (rhs)

Source: Statistics Canada. Forecast by TD Economics as of December 2013.

% Y/Y % Chg.

Fcst*

INTEREST RATES TO REMAIN LOW

0

1

2

3

4

5

6

7

2000 2002 2004 2006 2008 2010 2012 2014

US Federal Funds Target Rate

Bank of Canada Overnight Rate

Source: Bank of Canada/Haver Analytics. Forecast by TD Economics as of December 2013.

%

Forecast

PROFIT GROWTH & CONTINUED LOW BOND YIELDS SUPPORTIVE TO EQUITIES

7,000

9,000

11,000

13,000

15,000

17,000

700

900

1,100

1,300

1,500

1,700

1,900

2007 2008 2009 2010 2011 2012 2013 2014

S&P 500 (lhs) S&P/TSX (rhs)

S&P 500 Index, 1941-43 = 100

Source: Bloomberg. As at February 4, 2014.

S&P/TSX Index, 1975 = 1000

B.C. ECONOMY EXPECTED TO PICK UP

1.1

-2.5

3.3

2.7

1.51.3

2.32.5

-3

-2

-1

0

1

2

3

4

2008 2009 2010 2011 2012 2013E 2014F 2015F

Forecast

Real GDP, annual % Chg. (B.C.)

Source: Statistics Canada, Haver AnalyticsForecast by TD Economics as of January 2014.

B.C. GOVERNMENT RETURNS TO BLACK INK

-3

-2

-1

0

1

2

3

10

15

20

25

99-00 01-02 03-04 05-06 07-08 09-10 11-12 13-14f

Budget Balance (RHS)

Net Debt (LHS)

Source: 2012 Federal Fiscal Reference Tables, 2012-13 Public Accounts and 2013 Government Budgets and Fiscal Updates.

% of GDP % of GDP

REGIONAL HOUSING PERFORMANCES

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1990 1992 1994 1997 1999 2001 2004 2006 2008 2011 2013

National Ex. Toronto and Vancouver

Vancouver

Toronto

Average Existing Home Prices-to-Average Household Income, %

Source: Canadian Real Estate Association, Statistics Canada. As at Q4, 2013.

NEW HOUSING STARTS TO MODERATE

0

5

10

15

20

25

30

35

40

45

2000 2003 2006 2009 2012 2015F

Vancouver

Rest of B.C.

B.C. Housing Starts, 000's of units

Source: CMHC, Forecast by TD Economics as at January 2014.

Forecast

…THERE IS AN ACTIVE COMMERCIAL DEVELOPMENT CYCLE

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Institutional and Government

Commercial

Industrial

B.C. Nonresidential Building Permits, Mil of C$

Source: Statistics Canada. As at January 2014.

REGIONAL OFFICE VACANCY RATES

0% 5% 10% 15% 20% 25%

Broadway Corridor

North Shore

Burnaby

New Westminister

Surrey

Richmond

Langley

Downtown

Suburb Total

Metro Vancouver Total

Source: Colliers International, figures as of Q4, 2013.

%, Vacancy Rate

CORE ECONOMIC & FINANCIAL THEMES FOR 2014

§  Improved economic growth performances

§  Ultra-low inflation

§  Stable short-term rates, steepening yield curves

§  USD to strengthen against most major currencies

§  Mixed commodity price picture

§  Corporate profit growth + low bond yields = equity market positive

TD Economics

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