TD Bank 2014 Annual Report Download - page 27

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 25
NET INCOME – REPORTED BY BUSINESS SEGMENT
(as a percentage of total net income)1
70%
40
50
60
20
10
30
0
14
1312 141312 141312
141312 141312 141312
NET INCOME – ADJUSTED BY BUSINESS SEGMENT
(as a percentage of total net income)1
70%
50
60
40
20
10
30
0
Canadian Retail
U.S. Retail
Wholesale Banking
ECONOMIC SUMMARY AND OUTLOOK
After accelerating in the April to June period of 2014, Canadian
economic growth has shown signs of moderating. Looking ahead,
quarterly gains in real gross domestic product (GDP) are likely to
run at a respectable but still modest 2 to 2.5% rate over the rest
of 2014 and in 2015.
Outside of Canada’s borders, economic conditions have been mixed.
Concerns about economic performances in emerging markets, Japan,
and the Eurozone have contributed to a sharp drop in crude oil prices,
which has dampened the near-term prospects of the Canadian energy
sector. In contrast, the U.S. economy has continued to deliver superior
economic growth relative to those of Canada and other major
advanced economies. The U.S. job market has been posting significant
increases, with private-sector job gains having exceeded 200,000 per
month for most of 2014. A continued recovery in job creation is
expected to push the U.S. unemployment rate lower over the next two
years. In line with a stronger labour market, the U.S. Federal Reserve
has completed its extraordinary monetary stimulus and is expected to
raise interest rates by the middle part of 2015.
Despite the impact of lower commodity prices on export earnings,
the Canadian export sector is expected to grow at a healthy rate,
helped by rising U.S. demand and the benefits to competitiveness of a
lower Canadian dollar, with the latter expected to weaken further over
the January to June period of 2015. As Canada’s export performance
improves, an increase in business confidence is expected to drive a
firming in capital spending, particularly for machinery and equipment.
Meanwhile, Canadian consumers have continued to increase
spending in the July to September period of 2014, especially for light
vehicles, which rose to record levels. Activity in the Canadian housing
sector has also shown marked strength for the second consecutive
calendar year quarter, both in terms of sales volumes and new
construction activity. Interest-sensitive purchases have continued to
benefit from low interest rates. That said, auto and home-related
purchases are expected to record more moderate gains over the near
term, as soft wage growth and elevated levels of household debt work
to restrain growth.
Although inflation has remained elevated in recent months, the rise
has likely been due to temporary factors. Over the very near term,
lower gasoline prices will put significant downward pressure on head-
line Consumer Price Index (CPI) inflation. Although job gains over the
past few months have been encouraging, a lack of wage pressures
points to persistent economic slack. In this environment, the Bank
of Canada is likely to leave interest rates unchanged. As economic
growth gradually picks up over the coming quarters and these tempo-
rary factors run their course, the upside risks to inflation will rise.
As a result, the Bank of Canada is expected to start gradually raising
interest rates in October 2015, but increases are expected to be more
modest than in the past.
1 Amounts exclude Corporate segment.