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G L O B A L A N D C A N A D I A N E C O N O M I C O U T L O O K - - PowerPoint PPT Presentation

Nov 03, 2023 266 likes •614 views

26 SEPTEMBER 2019 G L O B A L A N D C A N A D I A N E C O N O M I C O U T L O O K PRESENTED TO K P M G M I N I N G E X E C U T I V E AN D D I R E C TO R F O R U M Dr David Williams Vice President, Policy www.bcbc.com | @bizcouncilbc

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www.bcbc.com | @bizcouncilbc

G L O B A L A N D C A N A D I A N E C O N O M I C O U T L O O K

26 SEPTEMBER 2019

K P M G M I N I N G E X E C U T I V E AN D D I R E C TO R F O R U M

Dr David Williams Vice President, Policy PRESENTED TO

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OUTLINE

2

▪

Highlights

▪

Global economy

▪

Canadian economy

▪

Risks

▪

Conclusion

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SLIDE 3

HIGHLIGHTS

3

▪

Tepid global GDP growth outlook ▪ Low productivity growth ▪ Trade disputes & uncertainty

▪

Canadian fundamentals look weak ▪ 30-year high population growth lifts GDP, but… ▪ Falling capital intensity ▪ Low productivity growth ▪ Low growth in GDP per capita (0.3% p.a. over past 2 years) ▪ Record national debt (302% of GDP, 8th highest globally)

▪

Risks skewed to the downside

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GLOBAL ECONOMIC OUTLOOK

4

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1 2 3 4 5 6 7 US Euro area Japan China Oil-importing EMEs ** Rest of world World 2018 2019* 2020* 2021*

5

TEPID GLOBAL GROWTH OUTLOOK

Source: Bank of Canada

Real GDP growth, annual

% 15% of world GDP 18% 33% 12% 4% 18%

* Projections ** Includes India, Brazil, South Africa, South Korea

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6

COMMODITY PRICES HAVE IMPROVED SINCE JANUARY

Source: Bank of Canada

Commodity price indices, USD prices, weekly, 3 Jan 2019 = 100

80 90 100 110 120 130 140 150 160 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Total (BCPI) Energy Metals and minerals Forestry Agriculture Index

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7

LONG-TERM DECLINE IN PRODUCTIVITY & GDP GROWTH

Source: OECD

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8

TRADE GROWTH HAS STALLED

Source: OECD

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9

TRADE GROWTH HAS STALLED

Trade growth, y/y % change quarterly data %

Source: Bank of Canada

China provided most of the growth in global trade

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10

UNCERTAINTY DAMPENS MANUFACTURING & INVESTMENT

Source: OECD

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SLIDE 11

1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 3mth 6mth 1 year 2 years 5 years 10 years 30 years (US) / Long term (Can) U.S. Canada

11

INVERTED YIELD CURVES

Source: Bloomberg 10/9/2019, Bank of Canada 9/9/2019

Yields on Treasury bills/bonds

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12

US INFLATION EXPECTATIONS HAVE DECLINED

Source: Bank of Canada

Monthly data

Fed target: 2% for PCE

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CANADIAN ECONOMIC OUTLOOK

13

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CANADIAN ECONOMY IS RUNNING CLOSE TO ITS (MEAGRE) FULL SPEED

Source: Bank of Canada

Real GDP growth, annual

1.9 1.3 1.9 2.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 2018 2019* 2020* 2021* Potential GDP growth Actual GDP growth

* Projected

Potential GDP growth depends on growth in: 1. Productivity 2. Labour input

%

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SLIDE 15

0.6%

0.3% 0.7% 1.1% 1.5%

  • 1%

0% 1% 2% 3% 4% 5% 1986 1991 1996 2001 2006 2011 2016 GDP per capita GDP Labour productivity (business sector) Population (RHS)

15

30-YR HIGH POPULATION GROWTH IS LIFTING GDP, BUT NOT PRODUCTIVITY & GDP PER CAPITA

Source: Statistics Canada

3-year CAGR, quarterly data

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16

CAPITAL INTENSITY IS BELOW PRE -RECESSION LEVELS

Source: Statistics Canada

Real business investment per worker (before depreciation), Canada, 2008Q1 to 2019Q2*

$/worker

* 4 quarter average, 2012 chained dollars

  • 1446
  • 73
  • 689
  • 532
  • 1500
  • 1300
  • 1100
  • 900
  • 700
  • 500
  • 300
  • 100

100 300 500 TOTAL NON-RESIDENTIAL STRUCTURES Non-residential buildings Engineering structures MACHINERY AND EQUIPMENT Industrial machinery & equipment Other electrical, electronic machinery & equipment Other machinery & equipment Furniture, fixtures & prefabricated structures Passenger cars Aircraft & other transport equipment Communications & audio-video equipment Trucks, buses & other motor vehicles Computers & computer peripheral equipment INTELLECTUAL PROPERTY PRODUCTS Mineral exploration & evaluation Research & development Software

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17

CANADA HAS LITTLE IDLE CAPACITY

Source: Bank of Canada

Estimates of potential GDP less actual GDP (“output gap”), Canada, quarterly

  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 2019Q2 2017Q2 2015Q2 2013Q2 2011Q2 2009Q2 2007Q2 2005Q2 Integrated framework Extended multivariate filter

% of GDP

2019Q2: -0.4% to -0.9% of GDP

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18

CORE INFLATION MEASURES ARE CLOSE TO 2% TARGET

Source: Bank of Canada

Year/year percentage change, monthly data

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RISKS

19

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RISKS TO THE CANADIAN OUTLOOK

20

▪

Upside ▪ Stronger U.S. growth (e.g. productivity acceleration; fiscal stimulus) ▪ Looser monetary policy by global central banks ▪ Credit boom accelerates again

▪

Downside ▪ Tighter financial conditions ▪ Weaker growth in China and lower commodity prices ▪ Disorderly unwinding of high global indebtedness (esp. China, HK, Canada)

▪

Risks are skewed to the downside

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21

CANADA’S POST-2005 CREDIT BOOM IS YET TO UNWIND Credit to GDP ratios in the non-financial sector, market value

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

50 100 150 200 250 300 350 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Households Non-financial corporations Government Canadian recessions

Source: BIS, C.D. Howe Institute

% of GDP

Corporate debt boom begins (2006) Household debt boom begins (2001) Government debt boom begins (2008)

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22

BOC: TRADE RISKS ARE SKEWED TO THE DOWNSIDE

Source: Bank of Canada July MPR

Percentage change in real GDP relative to BOC’s base case projection in 2021Q4

Upside: tariff changes over past 2yrs are reversed and all trade-related uncertainty dissipates Downside: U.S. imposes 25% tariffs

  • n all imports and trading partners

respond in-kind; trade-related uncertainty increases GDP ↓3% (world) ↓6% (Canada) Global commodity prices ↓30% Terms of trade ↓, CAD ↓25%

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CONCLUSION

23

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CONCLUSION

24

▪

Tepid global GDP growth outlook ▪ Low productivity growth ▪ Trade disputes & uncertainty

▪

Canadian fundamentals look weak ▪ 30-year high population growth lifts GDP, but… ▪ Falling capital intensity ▪ Low productivity growth ▪ Low growth in GDP per capita (0.3% p.a. over past 2 years) ▪ Record national debt (302% of GDP, 8th highest globally)

▪

Risks skewed to the downside

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THANK YOU!

25

david.williams@bcbc.com

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QUESTIONS

26

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EXTRA CHARTS

27

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NEAR-TERM GLOBAL OUTLOOK WEAKENS

Source: OECD

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29

LIVING STANDARDS HAVE STAGNATED SINCE 2007

Source: OECD * 2007-17 CAGR

Real GDP per capita, compound annual growth rate, 2007-2018

  • 1%

0% 1% 2% 3% Germany Australia OECD* US G7 Japan CANADA Euro area France UK Italy Labour productivity Labour utilization GDP per capita GDP per capita (2000-07)

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30

DISAPPOINTING PRODUCTIVITY GROWTH SINCE 2007

Source: OECD * 2007-17 CAGR

Growth in labour productivity (GDP per hour worked), CAGR

1.1% 0.8% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% US UK OECD* G7 Germany Japan France Australia CANADA Euro area Italy 2000-07 2007-18

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31

REAL WAGE GROWTH IS WEAK

Source: Statistics Canada

Real compensation per employee*, 5-year CAGR, Canada 0.6%

  • 1%

0% 1% 2% 3% Q1 1984 Q1 1989 Q1 1994 Q1 1999 Q1 2004 Q1 2009 Q1 2014

* Nominal total compensation per employee deflated by household consumption deflator

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32

EMPLOYMENT GROWTH IS RAISING TOTAL HOURS WORKED

Source: Bank of Canada

Year/year percentage change, quarterly data

  • 3%
  • 2%
  • 1%

0% 1% 2% 3% 4% Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Employment Average hours worked Total hours worked

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33

CAPITAL INTENSITY IS FALLING

Source: Statistics Canada

Real business gross fixed capital formation per worker, Canada, y/y % change

  • 4%
  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Non-residential structures Machinery and equipment Intellectual property products Total