Market News
July 3, 2023

Economic projections for the United States and Canada in the long term.

The Toronto Dominion Bank has conducted the long-term forecasts for the economies of the United States and Canada.

Economic growth is the increase in production of goods and services over time, measured by GDP. It shows the overall health and development of an economy, leading to business expansion, job creation, and improved living standards. Sustained growth brings higher incomes, better infrastructure, increased consumption, and technological progress.

An economic growth forecast predicts the future performance of an economy in terms of its output or GDP. It considers factors like historical data, current indicators, sectors, policies, and global conditions. Forecasts help policymakers, businesses, investors, and individuals make informed decisions about resource allocation, investments, and financial planning. However, forecasts are not perfect and can be affected by uncertainties and unexpected events. They should be used with caution and updated regularly.

The Toronto Dominion Bank has conducted the following long-term forecasts for the economies of the United States and Canada.


In 2022, the United States experienced a slowdown in economic growth, although it remained above the trend at 2.1%. However, the outlook for 2023 suggests a further deceleration in economic growth. This is primarily attributed to the continuation of restrictive monetary policies, which will push growth below the trend. The forecast indicates that in 2023, growth is expected to average 1.3%,and in 2024, it is projected to decline further to 1.0%.

Similarly, Canada is expected to witness a comparable narrative to that of the United States. In the near term, spending in Canada is anticipated to grow modestly, thanks to a resilient job market. However, the impact of high inflation and high interest rates is predicted to gradually impede spending and hiring throughout 2023 and persist into 2024. These factors are likely to have an adverse effect on the economy, dampening consumer spending and potentially influencing employment trends.

The following chart represents the Annual average of forecasted GDP:


Despite the persistent mismatch between labor supply and demand, the U.S. labor market has consistently outperformed expectations. However, as economic growth weakens, hiring intentions are anticipated to be affected, which will consequently exert upward pressure on the unemployment rate. The latest projections suggest that the unemployment rate is expected to increase by 1.2 percentage points fromQ1-2023 to Q4-2024, reaching a peak of 4.6%. Eventually, it is projected to gradually return to its long-run average of 4%.

The labor market outlook in Canada indicates a higher level of weakness compared to the United States. It is projected that the unemployment rate in Canada will increase by 1.5percentage points, reaching its peak at 6.5% in Q3-2024. Unlike the United States, the Canadian job market is not as constrained, primarily due to the greater availability of labor supply resulting from robust immigration trends.

The Following Chart Forecasts the Annual labor force and Unemployement rate:


Inflation has experienced a deceleration  from the exceptionally high levels observed over multiple decades. However, more recent data has indicated a halt in the process of disinflation. The core PCE deflator, which is the Federal Reserve's favored gauge of inflation, is not projected to reach the Federal Open Market Committee's (FOMC) desired average inflation target of2% until the beginning of 2025.

It is anticipated that inflation has reached its highest point in Canada, and there are expectations of a gradual reduction in price pressures throughout 2023 and 2024. This anticipated easing of inflationary pressures should enable the Bank of Canada to keep the overnight rate at its current level of 4.5% throughout the year2023.


Based on the projections, the anticipated federal funds rate will reach 5.25% in the second quarter of2023 and will remain at that level until the end of the fourth quarter of the same year. As these higher interest rates effectively mitigate demand-side pressures and drive inflation closer to the desired 2% target, we expect the Federal Reserve to subsequently reduce interest rates to a level that aligns more closely with its neutral rate of 2.5%.

In the course of 2023,there is a  decline in both short-term and long-term canadian bond yields, as the prospect of policy rate cuts becomes more imminent. The assumption is that the overnight rate will gradually decrease towards its neutral level, commencing at the start of 2024. By 2025,we can expect the rate to reach 2.25%. These adjustments in interest rates are likely to contribute to the downward trend in bond yields over the mentioned period.


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