TD Economics

COVID-19 Economic Assessment Webcast

Monday April 20th, 2020 at 11 AM EST

Global

Global Risks Remain Tilted To The Downside

3

2.9

-4.4

6.8

1.7

-6.5

5.8

3.6

-2.9

7.4

-8

-6

-4

-2

0

2

4

6

8

10

2019 2020 2021 2019 2020 2021 2019 2020 2021

Global Advanced Economies Emerging Markets

Source: TD Economics

Real GDP, Year/Year % Change

More than 2 Million COVID-19 Cases Worldwide, But There Is Light At The End Of The Tunnel

4

0

500

1,000

1,500

2,000

2,500

22-Jan 08-Feb 25-Feb 13-Mar 30-Mar 16-Apr

More than 2 Million People Have TestedPositive for COVID-19

Source: JHU, TD Economics

COVID-19 Number of Cases, Thousands

100

1,000

10,000

100,000

1,000,000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49

But the Curve Is Slowly Bending

Canada

France

US

Italy

UK

Source: ECDC, TD Economics

Cumulative COVID-19 Cases

Number of days since the 200th case

Some European Countries Are Starting to Relax Measures

5

0

20

40

60

80

100

11-Mar 17-Mar 23-Mar 29-Mar 4-Apr 10-Apr 16-Apr

Austria's Recovery Rate Has Been Consistently Higher than Its Death Rate in Recent Weeks

Recovery Rate

Death Rate

Source: JHU, TD Economics.

Note: Recovery rate and death rate are calculated as cumulative total recoveries and deaths

over cumulative number of closed cases

% Restrictions imposed

0

20

40

60

80

100

11-Mar 17-Mar 23-Mar 29-Mar 4-Apr 10-Apr 16-Apr

While Denmark’s Recovery Rate Has Also Been Close to 100% Since Beginning April

Recovery Rate

Death Rate

Source: JHU, TD Economics.

Note: Recovery rate and death rate are calculated as cumulative total recoveries and deaths

over cumulative number of closed cases

% Restrictions imposed

But Some Asian Economies Are Being Hit by a Second Wave

6

0

1

2

3

4

5

6

7

8

9

10

26-Feb 07-Mar 17-Mar 27-Mar 06-Apr 16-Apr

Singapore Japan

Source: JHU, TD Economics

Cumulative Number of COVID-19 Cases, Thousands

Singapore and Japan Have Seen a Resurgence of Cases as a Second COVID-19 Wave Hits

-60

-50

-40

-30

-20

-10

0

Social Distancing Matters

Source: Google, TD Economics

Note: This chart is the average social distancing trends seen in retail and recreation,

grocery and pharmacy, transit stations and workplaces.

Business Activity, Especially The Services Sector, Has Been Hit Hard Globally

7

40

42

44

46

48

50

52

54

56

Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20

Manufacturing Sector Also Took a Hit

Australia EZ France

Germany Japan U.K.

Source: IHS Markit, TD Economics

Below 50 = a majority of businesses reported a contraction

Manufacturing PMIs Indexes

25

30

35

40

45

50

55

60

Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20

Record Lows in Services Sector Activity

Australia Euro Area France

Germany Japan U.K.

Source: IHS Markit, TD Economics

Note: Below 50 = a majority of businesses reported a contraction

Service PMIs Indexes

Despite the Russian-Saudi Truce, Oil Prices Remain Subdued

8

150

170

190

210

230

250

270

290

310

0

10

20

30

40

50

60

70

03-Jan 18-Jan 02-Feb 17-Feb 03-Mar 18-Mar 02-Apr 17-Apr

WTI (LHS) Copper (RHS)

Source: CME, TD Economics

WTI, USD/Barrel Copper, US¢/lb

Russian-Saudi price war startsRussian-Saudi ceasefire

Emerging Market Economies Are Going Through An Unprecedented Sudden-Stop

9

-4

-3

-2

-1

0

1

2

2007 2009 2011 2013 2015 2018 2020

Emerging Market Portfolio Flows are in Free Fall

Equity Flows Debt Flows Total Flows

Source: IIF, TD Economics.

Note: Total net non- resident purchases (EM stocks and bonds) presented as a 28-day moving average

Year/Year % Change

2008-09 GFC 2013 Taper Tantrum 2018 EM Sell-off

But China Is Showing Promising Signs Of Recovery

10

25

30

35

40

45

50

55

60

Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20

Services PMI Manufacturing PMI

China PMI Index

Source: CNBS, TD Economics

Note: Below 50 = a majority of businesses reported a contraction

Unprecedented Fiscal Measures Have Torn Apart The Fiscal Rulebook, Ending The Age Of Austerity

11

Target Liquidity Solvency

Households

• Suspension of mortgage payments, student loans • Cash transfers

• Tax and social security contributions deferrals

• Unemployment insurance

• Meal vouchers for students who are away from school

Businesses

• Extension of loan maturities • Equity injections

• Tax and social security contributions deferrals • Wage subsidies

• Credit guarantee• Direct subsidies

based on past sales (tax based)

Banks • Government guarantees

Source: TD Economics

0.9% 1.4%

3.5% 4.2%

10.3%12%

17%

36%

0

5

10

15

20

25

30

35

40

Euro

Are

a

Italy

Austr

alia

Ho

ng

Kon

g

U.S

.

Cana

da

U.K

.

Germ

any

Source: TD Economics

Fiscal Spending (% of GDP)

Central Banks Around The World Have Responded Using Conventional and Unconventional Monetary Tools

12

Monetary & Regulatory Measures

Conventional- Lowering policy rates

- Adjusting reserve requirements

Unconventional - Quantitative easing

- Monetization

Macroprudential- Relaxing banks' capital requirements- Easing the approach to NPLs

The Global Economy Will Look Drastically Different Once We Get Through This

13

Global Economy

Real

- Decrease in Potential GDP- Inflationary pressures especially for emerging markets- Continued labour market weakness

Monetary- Monetary policy less effective- Depletion of central bank tools

- Convergence of monetary policy and fiscal policy - Compromised central bank independence

Fiscal- Large deficits- Debt sustainability issues- Increased

monetization- Pressure to act

External

- Weaker currencies- More exchange rate interventions- More currency wars

Much like Post-war Era, Multilateral Institutions Will Play An Increasingly Important Role

❑ An increasing role of multilateral institutions:

➢IMF (International Monetary Fund)

➢World Bank

➢AIIB (Asian Infrastructure Investment Bank)

➢ADB (Asian Development Bank)

❑ A "Marshall Plan" equivalent to rebuild the global economy

❑ The COVID-19 outcome depends on how countries – both advanced economies and emerging markets – cooperate with each other

14

United States

Prolonged Return to "Normal" Level of Activity

16

0

2

4

6

8

10

12

14

16

18

15,000

16,000

17,000

18,000

19,000

20,000

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2019 2020 2021 2022

Level of Real GDP (LHS)

Unemployment Rate (RHS)

Source: TD Economics: Forecasts as of April 20th, 2020

Forecast

$Billions %

Biggest Job Losses Seen in Lower-Paid Sectors

17

-459

-46

-24

-76

-5

-18

-29

1

-52

-1

2

-7

1

-1,000 -500 0 500 1,000 1,500 2,000

Leisure & hospitality

Retail trade

Other services

Education & health svs

Transportation & warehousing

Manufacturing

Construction

Wholesale trade

Prof. & business services

Financial activities

Information

Mining and logging

Utilities

March Job Gains/Losses (Thous.) Average Weekly Earnings, $ (Jan. 2020)

Source: Bureau of Labor Statistics, TD Economics

Private Sector Average $975.15/week

Below Average Weekly Earnings

CARES Act Provides Material Assistance, More to Come

18

Individual Rebates, 290

Unemployment Benefits,

260

Paychek Protection Plan,366

Loans & Loan Guarantees for Larger Businesses*,

510

Grants to State & Local Govt and Industries,

229

Health & Various Federal Spending,

324

Tax Breaks, 300

Estimates for Measures in the CARES Act, $Billions

*Includes loans earmarked for specific industries like airlines.

Source: Committee for a Responsible Federal Budget, TD Economics

Paths Back to "Normal" Will Vary by Region

19

CT Massachusetts

ME

NH

New JerseyNew York

PennsylvaniaDE

D.C.

MD

NCVA

WV

Florida

GA

SCCalifornia

Texas

WA

10

100

1,000

10,000

- 500 1,000 1,500 2,000 2,500 3,000

Confirmed COVID-19 Cases per 100,000 People as of April 17th 2020, Log

2019 Real GDP, $ Billion

Sources: Bureau of Economic Analysis, Census Bureau, Johns Hopkins, TD Economics.

Canada

Service Sector Nature of Shock Means A Lasting Mark

21

Key Industries Likely To Feel Hit of COVID-19

Share of GDP March 2020 Job Losse, Thsds

Education 5.3% -125.4

Retail ex. Essentials 3.3% -207.5*

Food Services & Drinking Places 2.3% -294.4

Arts/Entertainment 0.8% -103.7

Air Transportation 0.5% -40.4**

Ground Transportation (Taxis, Sightseeing, Etc) 0.5% -40.4**

Note: GDP Shares approximate, based on 2019 data.*: total for retail and wholesale trade; **: transportation + warehousing

75

80

85

90

95

100

105

110

115

2018 2019 2020 2021 2022 2023

GDP

Pre-Crisis Potential Level

Post Crisis Potential Level

Source: Statistics Canada, Bank of Canada, TD Economics.

Index, 2018 = 100

Demand+Supply Shocks Hammer Canadian Oil Producers

22

0

10

20

30

40

50

60

70

Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20

WTI WCS

Source: Bloomberg, TD Economics

USD per Barrel

Bank of Canada Working To Keep Liquidity Flowing

23

❑ 100bp of inter-meeting cuts

❑ Quantitative easing ($5bn/month)

❑ Easing of collateral policies and concentration limits

❑ Purchases of CMBs, BAs, provincial bills

0

10

20

30

40

50

60

70

80

Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20

FRA-OIS Spread, Basis Points

Source: Bloomberg, TD Economics

Housing Entering A Stasis Period

24

70

75

80

85

90

95

100

105

110

115

2016 2017 2018 2019 2020

Sales Took A Dive..

Source: CREA, TD Economics

Index, 2017 = 100

20

30

40

50

60

70

80

2016 2017 2018 2019 2020

But Markets Still Tight

Source: CREA, TD Economics

Ratio of Sales to New Listings

Balanced Market

Buyer's Market

Seller's Market

Government Keeps Building The Bridge

25

Measures for Households Measures for Business

• Canada Emergency Response Benefit: $2k/month

for those who lost income ($24bn)

• Doubling the GST tax credit at a one-time cost of

$5.5bn

• Doubling Canada Child Benefit for this year at a

cost of $2bn

• Tax return filing date pushed to June – payments

due in September

• $40bn in SME credit via BDC and EDC

• Temporary 75% wage subsidy, to max payment

per employee of $44k equivalent ($73bn)

• Canada Emergency Business Account: partially

forgivable small ($40k) loans ($25bn)

• Delaying of tax payment to September ($85bn in

near-term liquidity)

What We'll Be Watching

26

❑ U.S. Developments

❑ Traditional Economy:

➢ Electricity usage (daily)

➢ Railway Carloadings (weekly)

❑ Service Sector:

➢ CFIB's new bi-weekly indicator

➢ HH sentiment indicators, such as Bloomberg-Nanos (weekly)

➢ Other interesting indicators (OpenTable, Google location reports, etc)

❑ Company/sectoral announcements

Financial

Equity Markets In Context

28

Recessions

Peak-to-trough, %, Closing Value

Number of days Between Peak and Trough

1929 -86.2 10261937 -54.5 3861945 -6.9 191948 -20.6 3631953 -14.8 2521957 -20.7 991960 -13.4 2941970 -36.1 5431973 -48.2 6301980 -17.1 431981 -27.1 6221990 -19.9 872001 -49.1 9292008 -56.8 5172020 -33.9 33

Source: Bloomberg LP, TD Economics

Non-Recessions

Peak-to-trough, %, Closing Value

Number of days Between Peak and Trough

1933-1935 Sell Off -33.9 604

1962 Sell Off -28.0 196

1966 Sell Off -22.2 240

1987 Sell Off -33.5 101

1998 Sell Off -19.3 45

2011 Sovereign Debt Crisis -19.4 157

2015 Oil Shock -14.2 266

2018 Trade War Shock -19.8 95

Source: Bloomberg LP, TD Economics Notes: Dates for all recession and non-recession sell offs can be found in table 5 in the appendix.

Corporate Debt

29

-5

0

5

10

15

20

25

30

35

40

45

50

1997 1999 2002 2004 2007 2009 2012 2015 2017 2020

AAA AA

A BBB

BB B

CCC

Source: ICE/BAML, FRB, TD Economics

Spread off US-10Y, %

The Road Forward

30

❑ Phase 1:

➢Action: Liquidity injections by central banks

➢Goal: Keep the financial system intact

➢Signal of Success: Low funding rates and lower financial market volatility

❑ Phase 2:

➢Action: Keep policy rates and bond yields low

➢Goal: Enable the economy to accelerate out of the crisis

➢Sign of Success: Rising risk assets and acceleration of economic growth

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Twitter: @TD_Economics

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This concludes our webcast.

Thank you for joining us.