2015 CUSBA CROSS-BORDER FORECAST Canadas Great Balancing Act - PowerPoint PPT Presentation

2015 CUSBA CROSS-BORDER FORECAST Canada’s Great Balancing Act February 5, 2015 Detroit Branch Federal Reserve Bank of Chicago Peter Hall Vice-President and Chief Economist

TARGET’S DILEMMA: CANADA’S TAPPED -OUT CONSUMERS Debt to 4-quarter moving average of disposable income 170 160 150 140 130 120 110 100 90 95 98 01 04 07 10 13 Sources: Statistics Canada, Haver Analytics 2

CONSUMERS VULNERABLE TO RATE HIKES Current total interest payments, $M, actual and shock 120,000 100,000 80,000 Shock 60,000 Actual 40,000 20,000 0 95 97 99 01 03 05 07 09 11 13 Sources: Statistics Canada, Haver Analytics 3

HOUSING: ALSO FEEBLE Housing starts, SAAR and requirements 350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: EIA-CME, Haver Analytics 4

PUBLIC FINANCES: FEDS ARE OK… Budget balance as a share of GDP 4 2 0 -2 -4 -6 -8 -10 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Sources: RBC Financial 5

…BUT THE PROVINCES? Budget balance as a share of GDP 1 1 0 -1 -1 -2 -2 BC AB SK MB ON QC NB NS PEI NF Sources: RBC Financial 6

REASONS THE US RECOVERY IS REAL Lagging indicators Pent-up Leading demand indicators Sentiment End of QE No added austerity 7

CANADA: ARE EXPORTS IN TROUBLE? Exports, chained 2007, $million 42,000 40,000 38,000 36,000 34,000 32,000 30,000 28,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: Statistics Canada, Haver Analytics 8

US INDUSTRY: CAPACITY CRUNCH US capacity utilization, all industry, per cent of capacity 85 80 75 70 65 60 2001 2005 2009 2013 Sources: Federal Reserve Board, Haver Analytics 9

EXPORT FORECAST OVERVIEW* % Share of Total CAD bn Exports Export Outlook (% growth) 2013 2013 2013 2014(f) 2015(f) Agri-Food 50.2 9.5 5.6 10 Energy 123.9 23.4 6.5 19 Forestry 29.8 5.6 12.4 13 10 Chemical and Plastics 37.0 7.0 7.4 12 Fertilizers 7.7 1.5 -4.9 -10 Metals, Ores and Other Industrial Products 61.9 11.7 -0.1 2 Industrial Machinery and Equip. 28.0 5.3 -2.4 8 16 Aircraft and Parts 11.3 2.1 4.6 12 10 Advanced Technology 13.8 2.6 -0.6 3 4 Motor Vehicles and Parts 62.5 11.8 -0.9 9 3 Consumer Goods 8.0 1.5 11.0 -3 5 Special Transactions* 3.6 0.7 10.2 20 9 Total Goods Sector 443.5 83.7 3.7 11 6 Total Service Sector 86.5 16.3 2.9 4 4 Total Exports 530.0 100.0 3.6 10 6 Memorandum Total Volumes 100.0 1.9 4 5 Total Goods Nominal (excl. Energy) 319.6 60.3 2.6 8 7 Total Goods Nominal (excl. Autos and Energy) 257.1 48.5 3.5 7 8 Source: Statistics Canada, EDC economics, 2013 is actual data while 2013 and 2014 are forecast 10 Special transactions* mainly low-valued transactions, value of repairs is equipment and goods returned to country of origin.

OIL PRICES – GOOD NEWS, BAD NEWS West Texas Intermediate crude, Cushing, USD/bbl 160 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sources: EIA-CME, Haver Analytics 11

EXCESS LIQUIDITY: DISTORTIONS? Cash injection Cash hoarding Cash already in the system Source: EDC Economics 12

ADD A LITTLE GROWTH, AND… Financial transmission mechanism Source: EDC Economics 13

THE OIL PRICE PLUNGE: 2008, NOW West Texas Intermediate crude, Cushing, USD/bbl, peak-to-trough 160 140 120 100 USD 80 Now Then 60 40 20 0 0 1 2 3 4 5 6 7 Months Sources: EIA-CME, Haver Analytics 14

DRIVERS OF THE CANADIAN DOLLAR Oil & gas prices Non-energy commodity prices Interest rate spreads Canadian dollar US dollar movements* The ‘halo’ effect Source: EDC Economics 15

IMPACT OF OIL PRICES ON THE CANADIAN ECONOMY Oil Price Impact by Economic Sector, % of GDP Category Oil Price, WTI Crude, $US Oil price scenario: $75 $60 $40 $25 O&G direct -1.6% -2.6% -3.8% -4.8% Indirect investment -0.2% -0.3% -0.4% -0.5% Manufacturing (cost) 0.6% 1.0% 1.5% 1.8% Manufacturing (effect of $) 0.7% 1.2% 1.8% 2.2% Consumer 0.4% 0.6% 0.9% 1.2% Fiscal -0.1% -0.2% -0.3% -0.4% Net impact, % of GDP -0.16% -0.26% -0.39% -0.48% 16

TAKEAWAYS › Domestic demand is weak › Consumers: tapped out › Housing: overbuilt › Austerity still in the works › Trade takes over › Investment focus shifts › From internal to external › Monetary policy: no rush to tighten › Dollar to remain weak 17

VISIT US ONLINE › edc.ca/economics › Country analysis and information › Global Export Forecast › Weekly Commentary › Trade Confidence Index › Research reports on international trade 18

RISKS › Housing market collapse › Debt crunch › US infected by global weakness › Permanently weaker oil prices › Neo-myopic Canadian exporter › Population constraints › Investment reticence in Canada › Private › Public 19

RUSSIA: VULNERABLE TO SANCTIONS Real GDP, Russia, billions of chained 2008 rubles, % yoy 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 Sources: State Committee of the Russian Federation, Haver Analytics 20

GLOBAL GROWTH FORECAST* Market Share (2013) 2012 2013 2014 (f) 2015 (f) US 16.5 2.3 2.2 2.2 3.6 1.5 Canada 1.7 2.0 2.2 2.8 Mexico 2.0 4.0 1.1 2.3 3.8 Euro Area 13.1 -0.7 -0.4 0.9 1.4 Japan 4.6 1.5 1.5 1.4 1.2 Industrialized 43.6 1.2 1.4 1.9 2.6 28.7 Emerging Asia 6.7 6.6 6.4 7.1 › China 15.8 7.7 7.7 7.5 8.0 › India 6.6 4.7 5.0 5.2 6.0 LatAm/Caribbean 8.7 2.9 2.7 1.4 2.5 › Brazil 3.0 1.0 2.5 0.5 2.0 Emerging Europe 8.2 5.5 3.4 0.7 1.5 › Russia 3.4 3.4 1.3 0.6 0.9 6.9 3.1 4.4 Africa/Mideast 4.9 3.1 Emerging 56.4 5.1 4.7 4.2 5.0 Total World 100.0 3.4 3.3 3.2 4.0 21 *Dated – pending oil price adjustments

EXPORT FORECAST OVERVIEW* % Share of Total CAD bn Exports Export Outlook (% growth) 2013 2013 2013 2014(f) 2015(f) Agri-Food 50.2 9.5 5.6 10 5 Energy 123.9 23.4 6.5 19 4 Forestry 29.8 5.6 12.4 13 10 Chemical and Plastics 37.0 7.0 7.4 12 5 Fertilizers 7.7 1.5 -4.9 -10 14 Metals, Ores and Other Industrial Products 61.9 11.7 -0.1 2 7 Industrial Machinery and Equip. 28.0 5.3 -2.4 8 16 Aircraft and Parts 11.3 2.1 4.6 12 10 Advanced Technology 13.8 2.6 -0.6 3 4 Motor Vehicles and Parts 62.5 11.8 -0.9 9 3 Consumer Goods 8.0 1.5 11.0 -3 5 Special Transactions* 3.6 0.7 10.2 20 9 Total Goods Sector 443.5 83.7 3.7 11 6 Total Service Sector 86.5 16.3 2.9 4 4 Total Exports 530.0 100.0 3.6 10 6 Memorandum Total Volumes 100.0 1.9 4 5 Total Goods Nominal (excl. Energy) 319.6 60.3 2.6 8 7 Total Goods Nominal (excl. Autos and Energy) 257.1 48.5 3.5 7 8 Source: Statistics Canada, EDC economics, 2013 is actual data while 2013 and 2014 are forecast 22 Special transactions* mainly low-valued transactions, value of repairs is equipment and goods returned to country of origin.