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How to Fix The Canadian Recession CFA Qubec January 22, 2009 Glen - PowerPoint PPT Presentation

How to Fix The Canadian Recession CFA Qubec January 22, 2009 Glen Hodgson Senior Vice-President and Chief Economist hodgson@conferenceboard.ca www.conferenceboard.ca Global Economic Highlights The world economy expanded by 2.4 per cent


  1. How to Fix The Canadian Recession CFA Québec January 22, 2009 Glen Hodgson Senior Vice-President and Chief Economist hodgson@conferenceboard.ca www.conferenceboard.ca

  2. Global Economic Highlights • The world economy expanded by 2.4 per cent in 2008 and growth will slow down to a miniscule 0.4 per cent in 2009, absent policy intervention • The U.S. financial crisis and recession has rippled around the world • Sustained but slower growth in emerging markets, led by China and India, will help blunt the impact of a U.S. slowdown www.conferenceboard.ca www.conferenceboard.ca

  3. U.S. Outlook • U.S. economy is in recession • Continued sharp decline in home prices • Consumer spending falls for 5 quarters • Good news is difficult to find—some key • Good news is difficult to find—some key sectors will eventually hit bottom; decline in energy prices helping • Forecast incorporates our “guess” of a possible Obama stimulus package www.conferenceboard.ca www.conferenceboard.ca

  4. U.S. Existing Home Sales and Prices (millions SAAR; $’000) 8.0 230 Sales avg. price 7.5 220 7.0 210 6.5 200 6.0 190 5.5 180 5.0 170 4.5 160 4.0 150 ����������������������������������� www.conferenceboard.ca

  5. Credit Spreads Narrowing (diff. between rates on 3-month Libor and 3-month T-bills) 5.00 4.60 4.20 3.80 3.40 3.00 2.60 2.60 2.20 1.80 1.40 1.00 'oct 17 'dec 3 'sep2 'sep8 'sep12 'sep18 'sep24 'sep30 'oct6 'oct10 'oct23 'oct29 'nov4 'nov10 'nov14 'nov20 'nov26 'dec9 'dec15 'dec19 'dec29 ���������������������������� www.conferenceboard.ca

  6. U.S. Labour Market (Change in U.S. Employment, 000s) 200 100 0 -100 -200 -200 -300 -400 -500 -600 v v 7 r l 8 r l y p y p u u a a o o 0 a e 0 a e J J M M N N n M S n M S a a J J ' ' ������������������������������������ www.conferenceboard.ca

  7. U.S. Consumer Confidence (1985=100) 120 110 100 90 80 70 70 60 50 40 30 nov dec nov dec nov dec sep oct feb mar apr may jul aug sep oct feb mar apr may jul aug sep oct 'jan07 jun 'jan08 jun ��������������������������������� www.conferenceboard.ca

  8. U.S. Real Consumer Spending Growth (per cent change, annualized) 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ������������������ www.conferenceboard.ca

  9. Obama Stimulus Package • $825b over two years - $550b on spending and $275b for tax cuts • $58b for energy initiatives including renewable energy tax cuts and funding for “smart electricity grid” “smart electricity grid” • $92b for infrastructure including transportation and water projects and repairs to government buildings www.conferenceboard.ca www.conferenceboard.ca www.conferenceboard.ca

  10. Obama Package (cont.) • $153b for making improvements to education and healthcare • Tax cuts of $500 per individual worker and $1000 per family and expansion of earned- income tax credit to include families with 3 children • Tax cuts for businesses including bonus depreciation for firms investing in new plant and equipment • Increas www.conferenceboard.ca www.conferenceboard.ca www.conferenceboard.ca

  11. US Federal Deficit ($billions) 200 100 0 -100 -200 -300 -400 -500 -500 -600 -700 -800 -900 -1000 -1100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ������������������ www.conferenceboard.ca

  12. U.S. Real GDP (per cent change) 5 4 3 2 2 1 0 -1 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 ������������������� www.conferenceboard.ca

  13. Canadian Outlook • Canada’s economy falls victim to a global recession and sharp drop in commodity prices, real GDP is forecast to contract by 0.5 per cent in 2009 • Fiscal stimulus packages in Canada and the United States do not suffice to keep respective economies out of recession • The trade sector will take a huge chunk out of growth this • The trade sector will take a huge chunk out of growth this year; auto sector will be particularly hard hit • Employment will decline this year, as the unemployment rate peaks at just over 8 per cent at the end of 2009 • A recovery is in store for 2010, with GDP rebounding with growth of 3.6 www.conferenceboard.ca

  14. Raw Materials Price Index (per cent change) 20 15 10 5 0 -5 -5 -10 -15 -20 -25 01 02 03 04 05 06 07 08e 09f ���������������������������������������������������������� www.conferenceboard.ca

  15. Adding up Real GDP Percentage point contribution to growth Domestic economy Export Import 6.00 5.00 4.00 3.00 2.00 1.00 1.00 0.00 -1.00 -2.00 -3.00 -4.00 2004 2005 2006 2007 2008f 2009f ����������������������������������������������������������� www.conferenceboard.ca

  16. Interest Rates (90-Day T-Bill) Quarterly 1999–09 8 7 6 U.S. 5 4 4 Canada 3 2 1 0 99 0 1 2 3 4 5 6 7 8 09f 10f ���������������������������������������������������������������� www.conferenceboard.ca

  17. The Loonie and the Oil Price WTI $US, $US/$C 1.05 140 1.00 120 Dollar (left) Oil Price (right) 0.95 100 0.90 0.85 80 0.80 0.80 60 0.75 0.70 40 0.65 20 0.60 0.55 0 99 00 01 02 03 04 05 06 07 08 09 10 Sources: The Conference Board of Canada; U.S. Energy Information Administration; Statistics Canada. www.conferenceboard.ca

  18. Exchange Rate 2000–10 U.S. cents per Canadian dollar 104 100 96 92 88 84 80 80 76 72 68 64 60 ����������������������������������������������������������� www.conferenceboard.ca

  19. Consumer Price Inflation Canada 2000–09 3.0 2.5 2.0 1.5 1.5 1.0 0.5 0.0 00 01 02 03 04 05 06 07 08 09 ����������������������������������������������������������� www.conferenceboard.ca

  20. Employment Growth Canada, 2000–09 2.8 380,000 in 2007 2.4 2.0 1.6 1.2 0.8 0.8 0.4 0.0 -0.4 -0.8 00 01 02 03 04 05 06 07 08 09 ����������������������������������������������������������� www.conferenceboard.ca

  21. Index of Consumer Confidence, Canada Jan 03–Dec 08 (2002 =100) 105 100 95 90 85 80 75 70 65 ��������������������������������������� � www.conferenceboard.ca

  22. Index of Consumer Confidence, Quebec Jan 03–Dec 08 (2002 =100) 110 105 100 95 90 85 85 80 75 70 65 l l l l l l r t r t r t r t r t r t u u u u u u 3 p c 4 p c 5 p c 6 p c 7 p c 8 p c j j j j j j 0 o 0 o 0 o 0 o 0 o 0 o a a a a a a ' ' ' ' ' ' n n n n n n a a a a a a J J J J J J ��������������������������������������� www.conferenceboard.ca

  23. Real Consumer Spending Growth Canada 2001–09 5 4 3 2 1 0 2001 2002 2003 2004 2005 2006 2007 08f 09f ����������������������������������������������������������� www.conferenceboard.ca

  24. Composition of Real Business Investment Growth (2007–09) 2007 2008 2009 8 6 4 2 0 -2 -4 -6 Machinery & Non-Res'd Total Business Equipment Construction Investment ����������������������������������������������������������� www.conferenceboard.ca

  25. Housing Starts vs. Demographic Requirements Canada 2001–09 (000s) Household formation 240 220 200 180 160 140 1 2 3 4 5 6 7 08f 09f ��������������������������������������������������������������������������������� www.conferenceboard.ca

  26. Limits of Monetary Policy • Rate cuts not being passed on fully by banks as they repair their own balance sheets • Much tighter credit conditions globally • Time lags before monetary policy becomes fully effective • Risk of liquidity trap – no demand for credit at any price www.conferenceboard.ca www.conferenceboard.ca www.conferenceboard.ca

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