Toronto Region Economic OutlookEconomic Outlook

Challenges and Opportunities

Sonya GulatiSenior Economist

February 2014

CANADA HAS OUTPERFORMEDCANADA HAS OUTPERFORMED

0

2

4

6

8

GDP change since pre-recession peak*, %

-10

-8

-6

-4

-2

0

Canada Ontario GTA U.S. Germany France Japan UK Italy

*Last data points as of Q4, 2013; Canada Q4, 2013 is expected figure; Ontario and GTA as of Q3, 2013. Source: Haver Analytics; Ontario Ministry of Finance; Conference Board of Canada.

THE TORONTO REGION ECONOMY ALSOHAS PERFORMED RELATIVELY WELLTHE TORONTO REGION ECONOMY ALSOHAS PERFORMED RELATIVELY WELL

Houston

Toronto Region*

Vancouver

Calgary-Edmonton

Annual growth in employment, %

-2 -1 0 1 2 3 4

Los Angeles

Chicago

Philadelphia

New York

Montréal

Annual growth,2002-2006

Annual growth,2007-2012

Note: *Includes Hamilton and Oshawa CMAs.

Source: Statistics Canada, Economy.com

INGREDIENTS FOR TORONTO’S RECENT SUCCESS INGREDIENTS FOR TORONTO’S RECENT SUCCESS

Domestic strength has offset shrinking manufacturing sector

Canada’s banks have remained sound

Housing (and more recently commercial) development have been major growth contributors

Federal and provincial governments primed the spending pump

IMPROVING GLOBAL ECONOMY TO BENEFIT CANADA AND TORONTO REGIONIMPROVING GLOBAL ECONOMY TO BENEFIT CANADA AND TORONTO REGION

5

6

7

8

9

2013E 2014-15 Avg.

Real GDP growth, annual % Chg.

-1

0

1

2

3

4

5

World NorthAmerica

EU-27 China Asia Ex-China LatinAmerica*

*Excluding Mexico. Forecast by TD Economics as at December 2013.

RESOURCE EXPORTS HAVE BEEN KEY TO CANADA’S RECENT SUCCESS RESOURCE EXPORTS HAVE BEEN KEY TO CANADA’S RECENT SUCCESS

70%

72%

74%

76%

30%

32%

34%

36%Resources (LHS) Non-Resources (RHS)

% of Total Exports

60%

62%

64%

66%

68%

70%

20%

22%

24%

26%

28%

30%

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

Source: Statistics Canada/Haver Analytics. As at January 2014. *YTD.

CANADA’S COMPETITIVENESS TO IMPROVE WITH FALLING LOONIECANADA’S COMPETITIVENESS TO IMPROVE WITH FALLING LOONIE

1.2

1.4

1.6

1.8

Fcst*

Relative Business Sector Unit Labour Costs (U.S./Canada)

0.0

0.2

0.4

0.6

0.8

1.0

Q1.81 Q1.86 Q1.91 Q1.96 Q1.01 Q1.06 Q1.11

Canada less competitive vs. U.S

Source: Haver Analytics; Forecast by TD Economics as of December 2013.

CANADA WILL ALSO BENEFIT FROM FURTHER TRADE DIVERSIFICATIONCANADA WILL ALSO BENEFIT FROM FURTHER TRADE DIVERSIFICATION

In 2012, 74.6% of Canadian exports went to U.S. and 50.6% of imports came from U.S.

(Shrinking from 87.1% and 62.6% respectively in 2002)

Need to foster a diversified economy that is rising up the value added production chain – not just living off our resource endowment

Working towards new agreements:

Canada – EU (CETA)

Canada - Central America Four (CA4)

Canada – China (FIPA)

Canada – Korea (CKFTA), South Korea

Canada – Japan, Economic Partnership Agreement

Canada - Trans-Pacific Partnership (TPP), Negotiations

E.U. IS TARGETED BY CANADA’S GLOBAL MARKETS ACTION PLANE.U. IS TARGETED BY CANADA’S GLOBAL MARKETS ACTION PLAN

SIGNIFICANCE OF CETASIGNIFICANCE OF CETA

EU is the world’s largest integrated economy, with 500 million people and annual economic activity of almost $17 trillion (bigger than U.S.)

Having access to this major market through a free-trade agreement will give Canada an advantage over other countries which do not.

We are ahead of U.S. and our companies will have a ‘first mover’ advantage

Reports indicate that CETA will bring a $12 billion boost to Canada’s annual income and a 20% increase in bilateral trade

EMPLOYMENT TRENDS IN TORONTO SHOW A GROWING DICHOTOMYEMPLOYMENT TRENDS IN TORONTO SHOW A GROWING DICHOTOMY

125

150

175

Total Manufacturing

Non-Manufacturing

Level of employment, 1987 Q1 = 100

50

75

100

1987 1990 1993 1996 1999 2002 2005 2008 2011

Note: Toronto CMA = Toronto Census Metropolitan Area, as defined by Statistics Canada.

Source: Conference Board of Canada.

RETURN TO THE DOWNTOWN CORERETURN TO THE DOWNTOWN CORE

15

20

25

2001 - 2006

2006 - 2011

Population growth, %

0

5

10

City of

Toronto

York

Region

Durham

Region

Halton

Region

Peel

Region

Hamilton

CMA

Note: *Includes Hamilton and Oshawa CMAs.

Source: Census population estimate.

ECHO BOOMER ALMOST HALF OF DOWNTOWN TORONTO POPULATIONECHO BOOMER ALMOST HALF OF DOWNTOWN TORONTO POPULATION

47.0%

25%

30%

35%

40%

45%

50%% of population aged 20-39

25.8%25.8%

0%

5%

10%

15%

20%

25%

Downtown Toronto* GTA Suburbs** Ontario

*Trinity-Spadina & Toronto Centre, **York, Peel, Halton & Durham Regions;

Source: Statistics Canada 2011 Census.

DRIVERS OF NEAR-TERM TORONTO REGION ECONOMIC OUTLOOKDRIVERS OF NEAR-TERM TORONTO REGION ECONOMIC OUTLOOK

Brightening U.S. trade prospects, moderate decline in C$

Non-residential investment prospects still bright

Expectation of gradual interest rate increases, only income growth to support soft landing in the household/housing sectors

FORECAST BY INDUSTRY IN THE TORONTO REGION*FORECAST BY INDUSTRY IN THE TORONTO REGION*

Transp. and Warehousing

Manufacturing

Wholesale & Retail Trade

Business Services

Goods

Total

Projected annual GDP growth by industry 2013-2017, %

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Total

Info & Cultural Industries

Services

Personal Services

Financial Services

Primary and Utilities

Government & Non-Profit

Construction

Note: *Includes Hamilton and Oshawa CMAs.

Source: Conference Board of Canada; Forecasts by TD Economics as of March 2013.

ADDING MORE COLOUR TO THE OUTLOOKADDING MORE COLOUR TO THE OUTLOOK

Tilt in growth towards export areas tend to be less labour intensive

Governments will face increased headwinds in deficit-reduction efforts

Gradual shift in momentum likely towards the suburban areas of the Toronto region

Improvement needed in socio-economic outcomes

Growing challenge of gridlock and infrastructure deficit

NEAR-TERM CHALLENGES EXPECTEDNEAR-TERM CHALLENGES EXPECTED

Ageing population to put greater pressure on health care services, and expectations of Canadians are high

Need world class education system and increased investment in skills development

Essential to replace ageing infrastructure and need to expand infrastructureexpand infrastructure

Fiscal capacity is constrained and no one wants more taxation

Canada’s energy sector challenged by increased supply abroad

TD Economics

www.td.com/economicswww.td.com/economics

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