E Economic Outlook i O tl k Ottawa Chamber of Commerce/ Ottawa - - PowerPoint PPT Presentation

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E Economic Outlook i O tl k Ottawa Chamber of Commerce/ Ottawa - - PowerPoint PPT Presentation

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E Economic Outlook i O tl k Ottawa Chamber of Commerce/ Ottawa Business Journal: Mayors Breakfast Series Ottawa, Ontario 27 April 2012 MarkCarney Mark Carney Governor Agenda Three global forces The consequences for Canada

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SLIDE 1

E i O tl k Economic Outlook

Ottawa Chamber of Commerce/ Ottawa Business Journal: Mayor’s Breakfast Series Ottawa, Ontario 27 April 2012

MarkCarney Mark Carney Governor

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SLIDE 2

Agenda Three global forces The consequences for Canada The current outlook What must be done? at ust be do e

2

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SLIDE 3

Global Forces: Global Forces:

The Rise of Emerging Market Economies The Rise of Emerging-Market Economies

3

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SLIDE 4

Very robust growth in emerging markets

Real GDP, Index 2007Q1=100, quarterly data

150 160 150 160 Index Index

Real GDP, Index 2007Q1 100, quarterly data

130 140 130 140 110 120 110 120 90 100 2007 2008 2009 2010 2011 90 100

4

China Emerging market and developing economies

Last observation: 2011Q4 Note: Emerging market and developing economies is calculated using annual growth rate from IMF 2012 April WEO. Source: Statistics Canada, Bureau of Economic Analysis, China National Bureau of Statistics, IMF 2012 April WEO, Bank of Canada.

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SLIDE 5

Very robust growth in emerging markets

Real GDP, Index 2007Q1=100, quarterly data

150 160 150 160 Index Index

Real GDP, Index 2007Q1 100, quarterly data

130 140 130 140 110 120 110 120 90 100 2007 2008 2009 2010 2011 90 100

5

U.S. Canada China Emerging market and developing economies

Last observation: 2011Q4 Note: Emerging market and developing economies is calculated using annual growth rate from IMF 2012 April WEO. Source: Statistics Canada, Bureau of Economic Analysis, China National Bureau of Statistics, IMF 2012 April WEO, Bank of Canada.

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SLIDE 6

Emerging markets now account for bulk of growth

Contribution to global growth

100 %

Contribution to global growth

Percentage contributions to global real GDP growth, annual data 60 80 20 40 2000 2011 20

6

Advanced economies Emerging and developing economies

Last observation: 2011 Source: International Monetary Fund World Economic Outlook, Bank of Canada calculations

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SLIDE 7

Massive, rapid urbanization

Change in urbanized population

500 600 Millions of people

Change in urbanized population

300 400 100 200 100 1970 - 1990 1990 - 2010 2010 - 2030

f

7

More developed regions India & China

Note: f denotes forecast Source: United Nations - World Urbanization Prospects

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SLIDE 8

Global Forces: Global Forces:

Elevated Commodity Prices Elevated Commodity Prices

8

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SLIDE 9

Non-agriculture commodity prices up10-fold since WWII

Real commodity prices in the post-war period

1600 600

Real commodity prices in the post war period

1946 = 100 Index Index

Average industrial metals and energy

800 1000 1200 1400 400 500

Average industrial metals and energy prices (2002-2011, right axis) Average industrial metals and energy prices (1971-2001, right axis)

200 400 600 800 200 300

prices (1971 2001, right axis)

  • 200

200 100 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

9

Industrial Metals (left axis) Agriculture (left axis) Energy (right axis)

Last observation: 2011 Source: Bank of Canada, U.S. Bureau of Labor Statistics

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SLIDE 10

Commodity prices remain elevated

Index

Bank of Canada commodity price index (rebased to January 2009 = 100)

180 200

Bank of Canada commodity price index (rebased to January 2009 100)

140 160 120 2009 2010 2011 2012 80 100

10

All commodities (US$) Non-energy commodities (US$) Energy commodities (US$)

Last observation: April 2012 Note: April 2012 figures are calculated based on the average of daily spot prices up to 20 April 2012. Source: Bank of Canada

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SLIDE 11

Large gap between Canadian and global oil prices

10 US$/Barrel

Daily data

30

  • 20
  • 10
  • 50
  • 40
  • 30

May-2008 May-2009 May-2010 May-2011

  • 60

Western Canadian Select minus West Texas Intermediate

11

West Texas Intermediate minus Brent Western Canadian Select minus Brent

Last observation: April 2012 Note: Values in April 2012 are estimates based on the average daily spot prices up to 13 April 2012. For Brent crude oil prices, front-month futures prices are used. Sources: Bank of Canada and Bloomberg

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SLIDE 12

Global Forces: Global Forces:

The Great Deleveraging The Great Deleveraging

12

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SLIDE 13

Sharp increase in debt across developed world

Percentage points

Changes in household, corporate and net government debt

200 250 g p

Changes in household, corporate and net government debt as percentages of nominal GDP from 1980 to 2010

150 200 100 Canada Germany Australia United France United Japan Greece Spain Italy Portugal 50

13

Canada Germany Australia United States France United Kingdom Japan Greece Spain Italy Portugal

Note: Some figures refer to change from 1980 to 2009. Source: Cecchetti, Mohanty and Zampolli (2011)

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SLIDE 14

U.S. non-financial debt near levels of Great Depression

U S non financial debt to GDP ratio

300 %

U.S. non-financial debt-to-GDP ratio

Percent of GDP 250 200 100 150

14

1916 1921 1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

Last observation: 2011Q4 Source: U.S. Census Bureau data from 1916 to 1953, U.S. Flow of Funds data from 1954 to 2011, Bureau of Economic Analysis

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SLIDE 15

Weakest U.S. recovery since Great Depression

Index

U.S. Real GDP across economic cycles

135 145

U.S. Real GDP across economic cycles

Start of recession = 100, quarterly data

Start of the recession

105 115 125 85 95

Years after the start f th i Years before the t t f th i

  • 2
  • 1

1 2 3 4 5 6 7 65 75

  • f the recession

start of the recession

15

Range of past recession (1948 onward) U.S. current cycle Base-case projection

Note: The Big Five modern financial crises are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development and Bank of Canada projections

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SLIDE 16

Weakest U.S. recovery since Great Depression

Index

U.S. Real GDP across economic cycles

135 145

U.S. Real GDP across economic cycles

Start of recession = 100, quarterly data

Start of the recession

105 115 125 85 95

Years after the start f th i Years before the t t f th i

  • 2
  • 1

1 2 3 4 5 6 7 65 75 R f t i (1948 d) Th Bi Fi d fi i l i

  • f the recession

start of the recession

16

Range of past recession (1948 onward) The Big Five modern financial crises U.S. current cycle Base-case projection

Note: The Big Five modern financial crises are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development and Bank of Canada projections

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SLIDE 17

Weakest U.S. recovery since Great Depression

Index

U.S. Real GDP across economic cycles

135 145

U.S. Real GDP across economic cycles

Start of recession = 100, quarterly data

Start of the recession

105 115 125 85 95

Years after the start f th i Years before the t t f th i

  • 2
  • 1

1 2 3 4 5 6 7 65 75 Range of past recession (1948 onward) The Big Five modern financial crises

  • f the recession

start of the recession

17

Range of past recession (1948 onward) The Big Five modern financial crises U.S. current cycle Great Depression Base-case projection

Note: The Big Five modern financial crises are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development and Bank of Canada projections

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SLIDE 18

Rebuilding U.S. wealth will take a long time

Ratio Household net worth to disposable income US$ 6.1 6.3 6.5 Ratio Household net worth to disposable income 8000 9000 US$ billions 5.5 5.7 5.9 5000 6000 7000 4.9 5.1 5.3 2000 3000 4000 1990 1993 1996 1999 2002 2005 2008 2011 4.5 4.7 1000 W lth l t i 2007 k

18

20-year average

Sources: U.S. Bureau of Economic Analysis, Federal Reserve Board and Bank of Canada calculations Last observation: 2011Q4

Wealth lost since 2007 peak Level of savings in 2011

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SLIDE 19

Rebuilding U.S. wealth will take a long time

Ratio Household net worth to disposable income US$ 6.1 6.3 6.5 Ratio Household net worth to disposable income 8000 9000 US$ billions 5.5 5.7 5.9 5000 6000 7000 4.9 5.1 5.3 2000 3000 4000 1990 1993 1996 1999 2002 2005 2008 2011 4.5 4.7 1000 W lth l t i 2007 k

19

20-year average

Sources: U.S. Bureau of Economic Analysis, Federal Reserve Board and Bank of Canada calculations Last observation: 2011Q4

Wealth lost since 2007 peak Level of savings in 2011

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SLIDE 20

Euro-area recovery was weak, is over

Euro area real GDP across economic cycles

115 Index

Euro area real GDP across economic cycles

Start of recession = 100, quarterly data

Start of the recession

105 110 95 100

  • 2
  • 1

1 2 3 4 5 6 90

Years after the start

  • f the recession

Years before the start of the recession

20

Range of past recessions (1980 onward) The Big Five modern financial crises Current cycle Base-case projection

Note: The Big Five modern financial crises include Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: Eurostat and Organisation for Economic Co-Operation and Development

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SLIDE 21

European tensions still elevated

%

Yields on 10-year sovereign bonds, daily data

7 8 %

Yields on 10 year sovereign bonds, daily data

4 5 6 2 3 4 2009 2010 2011 2012 1

21

Germany France Italy Spain

Last observation: 25 April 2012 Source: Bloomberg

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SLIDE 22

A balance of payments problem

Index

Unit labour cost annual data 2000=100

140 150 Index

Unit labour cost, annual data, 2000=100

120 130 100 110 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 90 Germany France Portugal Ireland Italy Spain

22

Germany France Portugal Ireland Italy Spain

Last observation: 2011 Sources: Deutsche Bundesbank, Institut national de la statistique et des études économiques, Instituto Nacional de Estatistica, Central Statistics Office, Istituto Nazionale di Statistica and Instituto Nacional de Estadistica

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SLIDE 23

Private deleveraging, public leveraging

Percentage point

Household and government debt

30 40 g p change, 2007 to 2011

Household and government debt

10 20

  • 20
  • 10

Spain United Kingdom United States

  • 30

Debt/disposable income General government gross debt (% GDP) Debt/disposable income General government gross debt (% GDP)

Note: Figures for debt/disposable income refer to percentage point change from peak to trough. Latest available data for household debt is 2011 Q3 for Spain, 2011Q4 for others. 2011 forecast figures are used for government debt. Source: Bank for International Settlements, International Monetary Fund Fiscal Monitor April 2012, national statistics agencies

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SLIDE 24

Private deleveraging, public leveraging

Percentage point

Household and government debt

30 40 g p change, 2007 to 2011

Household and government debt

10 20

  • 20
  • 10

Spain United Kingdom United States

  • 30

Debt/disposable income General government gross debt (% GDP) Debt/disposable income General government gross debt (% GDP)

Note: Figures for debt/disposable income refer to percentage point change from peak to trough. Latest available data for household debt is 2011 Q3 for Spain, 2011Q4 for others. 2011 forecast figures are used for government debt. Source: Bank for International Settlements, International Monetary Fund Fiscal Monitor April 2012, national statistics agencies

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SLIDE 25

Consequences for Canada Consequences for Canada

25

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SLIDE 26

Canada: First G-7 country to recover to pre-recession GDP

Index

Real GDP; 2007Q1 = 100, quarterly data

104 106

Real GDP; 2007Q1 100, quarterly data

98 100 102 94 96 2007 2008 2009 2010 2011 90 92

26

Canada United States Euro area Japan

Last observation: 2011Q4 Sources: Statistics Canada, U.S. Bureau of Economic Analysis, Eurostat, and Japan Statistics Bureau

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SLIDE 27

Canada has more than recovered all jobs lost

Index

Total employment; index: 2007Q1 = 100, quarterly data

104 106 Index

Total employment; index: 2007Q1 100, quarterly data

100 102 94 96 98 2007 2008 2009 2010 2011 2012 92 94

27

Canada United States Euro area Japan

Last observations: 2011Q4 and 2012Q1 Note: Employment data for Japan in 2012Q1 is the average of January and February data. Sources: Statistics Canada, U.S. Bureau of Economic Analysis, Eurostat, and Japan Statistics Bureau

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SLIDE 28

Weakest post-war export recovery

Index

Comparison of real exports across economic cycles; quarter

160 170 Index

Comparison of real exports across economic cycles; quarter before the downturn in real GDP = 100, quarterly data

Quarterly peak in GDP before the downturn

130 140 150

Years after the d t Years before th d t

100 110 120

downturn the downturn

  • 1

1 2 3 4 5 6 80 90

28

Range of previous cycles (since 1951) Average of previous cycles (since 1951) Current cycle Base-case scenario

Sources: Statistics Canada and Bank of Canada calculations and projections

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SLIDE 29

Canada’s export performance second worst in G-20

% h i h f ld t 2000 t 2010

Japan France Canada U.K.

% change in share of world exports, 2000 to 2010

Indonesia Germany Italy Mexico U.S. Japan Australia Saudi Arabia Korea Argentina South Africa Indonesia China India Turkey Russia Brazil Australia

29

  • 50

50 100 150 200 China

Source: International Monetary Fund

%

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SLIDE 30

Canadian firms are losing competitiveness

%

Contribution of various factors to the change in Canada's relative unit labour costs

35 40 45 %

Contribution of various factors to the change in Canada s relative unit labour costs vis-à-vis those in the United States, quarterly data

20 25 30 35 5 10 15 2005 2006 2007 2008 2009 2010 2011

  • 5

Canadian dollar vis-à-vis the U.S. dollar Relative wages

30

Relative wages Relative productivity Percentage change in relative unit labour costs vis-à-vis the United States

Last observation: 2011Q4 Sources: Statistics Canada, U.S. Bureau of Economic Analysis and Bank of Canada calculations

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SLIDE 31

Canada’s trade directed toward slow growing economies

Average growth rates 2000 2010 annual data

10 12 %

Average growth rates 2000-2010, annual data

8% of exports

6 8

85% of exports

2 4

31

Last observation: 2010

Sources: International Monetary Fund World Economic Outlook, Industry Canada, Bank of Canada calculations *This country is not one of Canada's top 15 trading partners. Note: Export shares in 2010 are reported.

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SLIDE 32

Canada has relied on domestic demand

Evolution of real private domestic demand since pre-recession peak

110 Index

Evolution of real private domestic demand since pre recession peak

Index, peak of real GDP =100, quarterly data 100 105 95 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 90 Canada (April MPR) United States Japan United Kingdom Euro area Quarters

32

Canada (April MPR) United States Japan United Kingdom Euro area

Last observation: 2012Q3 for Canada, 2011Q4 for all others Note: Private domestic demand includes consumer, business and residential investment, except for the Euro area and United Kingdom, which also includes government investment. Sources: Bank of Canada, Statistics Canada, U.S. Bureau of Economic Analysis, Eurostat, Japan Cabinet Office, and the U.K. Office for National Statistics via Haver

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SLIDE 33

Borrowing costs remain at exceptionally low levels

%

Weekly data

6.5 7.0 %

Weekly data

5.0 5.5 6.0 3.5 4.0 4.5 2008 2009 2010 2011 2012 2.5 3.0

33

Effective business interest rate Effective household interest rate

Last observation: 13 April 2012 Source: Bank of Canada calculations

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SLIDE 34

Share of household expenditures in GDP now high

Ratio

Quarterly data

0.66 0.68

Quarterly data

0.62 0.64 0.58 0.60 1975 1980 1985 1990 1995 2000 2005 2010 0.56 0.58

34

Nominal consumption and residential investment to nominal GDP Average from 1975Q1 to present

Note: Dotted line indicates a projection. Sources: Statistics Canada and Bank of Canada calculations

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SLIDE 35

Canadians now more indebted than Americans and British

Ratio

Aggregate debt-to-income ratio

1.6 1.7 1.8

Aggregate debt to income ratio

1.3 1.4 1.5 1.0 1.1 1.2 0.8 0.9

35

Canada United States United Kingdom

Last observation: 2011Q4 Source: Statistics Canada, U.S. Federal Reserve, U.K. Bureau for National Statistics

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SLIDE 36

The Current Outlook The Current Outlook

36

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SLIDE 37

Projection for economic growth (per cent)

2002-2007 average 2011 2012 2013 2014

United States

2.6 1.7 2.3 2.5 3.6

Euro area

2.0 1.5

  • 0.6

0.8 1.4

Japan

1.6

  • 0.7

1.9 1.6 1.6

China

11.2 9.2 8.1 8.0 8.0

Rest of the world

5.1 4.3 3.4 3.5 3.7

world World

4.4 3.8 3.2 3.4 3.8

Canada

2.7 2.5 2.4 2.4 2.2

  • a. GDP shares are based on International Monetary Fund (IMF) estimates of the purchasing-power-parity (PPP) valuation of country GDPs for 2010.

Sources: IMF World Economic Outlook, September 2011, Bank of Canada

37

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SLIDE 38

Private domestic demand to continue driving growth

Percentage points

Contributions to real GDP growth

4 6 Percentage points

Contributions to real GDP growth

2 4

  • 2

2009 2010 2011 2012 2013 2014

  • 6
  • 4

38

Net exports and government Private domestic demand GDP

Sources: Statistics Canada and Bank of Canada calculations and projections

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SLIDE 39

Some slack remains in labour market

Monthly data, 3-month moving average

30 9 % %

Monthly data, 3 month moving average

26 28 7 8 22 24 6 7 20 5 2008 2009 2010 2011 2012 U l t t (l ft l ) I l t t ti k * ( i ht l )

39

Unemployment rate (left scale) Involuntary part-time workers* (right scale)

*Expressed as a percentage of total part-time employment, unadjusted, 12-month moving average Source: Statistics Canada Last observation: March 2012

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SLIDE 40

Robust business investment to continue

Comparison of real business fixed investment across economic cycles;

115 120 Index

Comparison of real business fixed investment across economic cycles; quarter before the downturn in real GDP = 100, quarterly data

Quarterly peak before the downturn in real GDP

100 105 110 85 90 95

Years after the downturn Years before the downturn

  • 1

1 2 3 4 5 6 75 80

40

Current cycle 1990-92 cycle 1981-82 cycle

Note: Dotted line indicates base-case scenario from April 2012 Report. Sources: Statistics Canada and Bank of Canada calculations and projections

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SLIDE 41

Business more optimistic about future sales

Balance of opinion*: Over the next 12 months, is your firm's sales volume expected to increase

50 60 %

Balance of opinion : Over the next 12 months, is your firm s sales volume expected to increase at a greater, lesser or the same rate as over the past 12 months?

10 20 30 40 20

  • 10

10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

  • 40
  • 30
  • 20

41

Greater: 58% Same:19% Lesser: 23%

*Percentage of firms expecting faster growth minus percentage expecting slower growth. Source: Spring 2012 Business Outlook Survey

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SLIDE 42

T

  • tal and core inflation in Canada expected to be around 2 %

%

Year-over-year percentage change, quarterly data

3 4 %

Year over year percentage change, quarterly data

1 2

  • 1

2007 2008 2009 2010 2011 2012 2013 2014

  • 2

42

Control range Total CPI Core CPI* Target

Note: Dotted lines indicate projections. *CPI excluding eight of the most volatile components and the effect of changes in indirect taxes on the remaining components Sources: Statistics Canada and Bank of Canada calculations and projections

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SLIDE 43

What Must Be Done What Must Be Done

43

slide-44
SLIDE 44

Global

Maintain open trade and capital markets Implement financial reforms Fiscal sustainability limits stimulus options Fiscal sustainability limits stimulus options Structural reforms across advanced economies

44

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SLIDE 45

Europe

Implement:

– Bank recapitalization - more new capital fewer asset sales Bank recapitalization more new capital, fewer asset sales – Sizeable sovereign firewall

Buy time to re-found European Monetary Union

– Fiscal and structural adjustment across the crisis economies – New economic governance New economic governance

45

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SLIDE 46

Canada

Maintain price stability through flexible inflation targeting Keep financial markets liq id and operating Keep financial markets liquid and operating Apply lessons of American and European crises ppy p

– Importance of fiscal sustainability – Value of flexible exchange rates – Risks of excessive household debt – Imperative to use cheap foreign capital to maximum effect

Canadian businesses to refocus, retool and retrain

46

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SLIDE 47

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