Long-term Economic Outlook for Quebec Rgime de rentes du Qubec - - PowerPoint PPT Presentation

ECONOMIC RESEARCH AND STRATEGY

Sébastien Lavoie | Assistant Chief Economist

Fall 2015

@vmbleconomie

Long-term Economic Outlook for Quebec Régime de rentes du Québec Triennial Seminar

ECONOMIC RESEARCH AND STRATEGY

Indicators | Trends | Forecasts

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Quebec: Weak Acceleration of Growth Despite Favourable Cyclical Factors

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Annual Growth of Real GDP in Quebec

Source: Statistics Canada, ISQ, LBS Economic Research and Strategy

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Quebec: Can we Hope for 2% Growth?

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Sources: Institut de la Statistique du Québec, LBS Economic Research and Strategy

Breakdown of 20 main industries in Quebec’s economy according to their annual rate of growth in %

Declining sectors Sectors showing modest growth (0-2%) Sectors showing strong growth (2%+)

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The Labour Force is Stagnating in Quebec

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Labour Force in Quebec

(in thousands)

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Start of the “Third Great Wave”

• BC: Pax Romana : 25% of global GDP
• 1870: Pax Britannica
• Globalization and trade: 1870 to 1913 (WWI)
• United States and UK: each accounted for 18% of global

GDP in 1913

• 1940: WWII; U.S. sole leader with 20% of global GDP
• 1950: start of Cold War, tensions
• 1960-1990: another wave of international trade
• 1990-2008: U.S. dominance, hyper-globalization
• 2014 +: digital revolution, moving towards Asian

dominance, return of geopolitical tensions

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Significant Potential for Robotics in Quebec’s Labour Force

Source: International Federation of Robotics, LBS Economic Research and Strategy

Number of Industrial Robots in Operation per 10,000 Employees in the Manufacturing Sector Around the World China Spain U.S. Japan Germany South Korea Canada

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“Intensive” Growth: Best Allocation of Resources and Capital

Number of Industrial Robots in Operation Around the World, in Thousands

Source: LBS, WSJ and International Federation of Robotics

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Various Sectors of the Quebec Economy will be Affected

Source: International Federation of Robotics, LBS

Value of Robot Sales Around the World in Billions of $, in 2013

Industrial Robots Robots Delivering Professional Services Robots Delivering Personal Services

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Risk: Close to 1M Jobs Could Ultimately be Automated in the Long Term in Quebec

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Source: Statistics Canada, LBS Economic Research and Strategy

Quebec – Proportion of Occupations at Risk of Automation and Robotization

Low Moderate High

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Technological Unemployment: Hindrance to Unemployment Rate and Temporary Downturn in Employment are Possible

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Unemployment Rate in Quebec

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Quebec Playing Catch-up with ROC in Dealing with the Digital Revolution

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Source: ISQ, Statistics Canada, LBS Economic Research and Strategy

Portion of Highly Skilled Employment Quebec Canada Ontario

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Education: Quebec in a Less Favourable Position to Deal with the Digital Revolution

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Source: Statistics Canada, LBS Economic Research and Strategy

Percentage of Working-Age Population with University Degree

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Can we Expect an Even Wider Gap Between Participation Rates for Men and Women?

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Source: Statistics Canada, LBS Economic Research and Strategy

Percentage of Working-Age Population in Quebec with a University Degree

Women Men

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Technological Unemployment: Do Men and Women Adapt at Different Rates?

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Source: ISQ, Statistics Canada, LBS Economic Research and Strategy

Portion of Employment that is Highly Skilled Quebec

Men Women

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Currency and Delocalization

• f Economic Activity

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Standardized to 100; Source: BIS, LBS Economic Research and Strategy

Canada: Real Effective Rate of Change

Spot 10-Year Mov. Av.

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Relocation and Automation: Impediments to Job Creation in the Manufacturing Sector

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Source: ISQ, LBS Economic Research and Strategy

Quebec – GDP and Employment in the Manufacturing Sector

Real GDP Employment

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Robotization: Contributing Towards the Greater Increase in Capital Expenses; Productivity Gains

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Source: ISQ, LBS Economic Research

Portion of Fixed Capital Investment in Quebec’s GDP

Investments in Machinery and Equipment

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The Shock of the Major Civilizations

• BC: Pax Romana : 25% of global GDP
• 1870: Pax Britannica
• Globalization and trade: 1870 to 1913 (WWI)
• United States and UK: each accounted for 18% of global

GDP in 1913

• 1940: WWII; U.S. sole leader with 20% of global GDP
• 1950: start of Cold War, tensions
• 1960-1990: another wave of international trade
• 1990-2008: U.S. dominance, hyper-globalization
• 2014 +: digital revolution, moving towards Asian

dominance, return of geopolitical tensions

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Global Production in 1960

Source: www.worldmapper.org

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Global Production in 2014

Source: www.worldmapper.org Source: www.worldmapper.org

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The Contribution of Asian Economies will Continue; a Multipolar World? Economic Centre of Gravity

Source: United Nations, IMF, Credit Suisse

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Today’s Global Economy

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Source: OECD, LBS Economic Research and Strategy

Other non-OECD Countries Other OECD Countries Euro Zone Japan U.S. China India

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The Global Economy in 2060

India and China Bigger than OECD Countries “Pax China/India”?

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Source: OECD, LBS Economic Research and Strategy

Other non-OECD Countries Other OECD Countries Euro Zone Japan U.S. China India

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The Percentage of the GDP Accounted for by Exports has Reached a Point of Maturity

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Source: ISQ, LBS Economic Research

Portion of International Trade in Quebec’s GDP

Exports of Goods and Services Imports of Goods and Services

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Signs of a World Less Centred on Globalization

• Global economic growth is lower
• Global supply chains in China less significant
• Under-performance of major multinational corporations in

relation to small-cap securities

• Protectionism: Close to 1000 trade-restricting measures

adopted by G20 countries since 2008

• Tensions around foreign currencies
• Immigration challenges
• Gaps: income inequality and standard of living
• Increased geopolitical conflict and tensions

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Global Production in 2012 US$85 Billion

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Global Production in 2050 US$450 Billion+

Source: CED-Q estimates

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“Intensive” Growth of Industrialized Countries “Extensive” Growth of Emerging Economies 28

Source: CEIC, RBA, UN, LBS Economic Research and Strategy

China: Urbanization Rate

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Quebec Cannot Rely on Globalization as Much as it Did in the Past

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Source: UNCTAD, Credit Suisse, LBS Economic Research and Strategy

Bilateral Investment Treaties Signed by Various Advanced Economies

Norway Japan Australia Canada U.S. Spain Italy Netherlands U.K. France Switzerland Germany

Signed with Advanced Economies Signed with Emerging Economies

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Quebec: The Portion of the GDP Accounted for by Exports has Reached a Point of Maturity (Excluding Currency)

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Quebec: Exports as % of the Real GDP

(in real terms)

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More “Multipolar” World: Quebec’s Growth will be Tied more to Ontario and the U.S.

• Long-term projections of major trading partners

favourable to Quebec exports:

• HSBC by 2050 (2011): U.S.: 1.8%, Canada: 2.4%
• Gvt of Ontario by 2030 (2010): Ontario: 2.6%
• PwC by 2050 (2014): U.S.: 2.4%, Canada: 2.1%
• OECD by 2060 (2012): U.S.: 2.1%, Canada: 2.2%
• Blue Chip Consensus by 2025: U.S.: 2.3%
• CBO by 2025: U.S.: 2.2%

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Renewable Energy will Account for Nearly 50% of New Global Energy Capacity

Source: OECD, IEA, 2014

Source: NBER, LBS Economic Research and Strategy

Energy Production Capacity 2013-2040 (Gigawatts)

Withdrawals Additions

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Leaving Favourable External Conditions Aside, What About Domestic Conditions?

Leveraging Household Debt

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Quebec Households: Less Debt, but Fewer Assets

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Source: Bank of Canada / Ipsos Reid, Statistics Canada, LBS Economic Research and Strategy

Debt to Gross Income (DGI) and % of Owner-Occupied Households with Mortgages

B.C.

DGI (%)

Owner-Occupied Households with Mortgages (%)

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Quebec Households: Less Debt, but Fewer Assets

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Average Net Worth of Households in 2014 (Assets Minus Debts, in Thousands $)

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Formation of Households and Housing Construction: an Inevitable Trajectory

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Source: Statistics Canada; *2011-2061 Forecasts from ISQ, CMHC **2011-16 Forecasts from LBS Economic Research and Strategy

Formation of Households* and Housing Starts in Quebec

(Annual Average in Thousands, Based on a 5-year Period)

Household Formation Housing Starts

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Limits to Household and Government Debt

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Quebec Government: Net Debt ($ million)

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Monetary Policy: 2% Inflation Target? Catch me if you can

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Return to 2% Inflation April 2010 MPR Late 2011 April 2011 MPR Mid-2012 April 2012 MPR Mid-2013 April 2013 MPR Mid-2015 April 2014 MPR Early 2016 October 2014 MPR Late 2016 January 2015 MPR Late 2016 July 2015 MPR Early 2017 Inflation Projections by the Bank of Canada

Source: Bank of Canada, LBS Economic Research and Strategy

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A New Inflation Environment: “Lowflation”?

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Inflation in Canada

(as Measured by the CPI)

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Macroeconomic Objectives are Not Always Compatible with the Financial Stability Objectives of the Central Banks

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Source: NBER, LBS Economic Research and Strategy

Duration of Expansions in the U.S. (Since 1854)

Median Average

• Nov. 82

March 91

• Nov. 01

June 09

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Macroeconomic Objectives are Not Always Compatible with the Financial Stability Objectives of the Central Banks

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Source: Bank for International Settlements (BIS), LBS Economic Research and Strategy

Debt to Nominal GDP Ratio at the Global Level

Emerging Economies Industrialized Countries

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Sources of Inflation: Multiple and Complex

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Source: Laurentian Bank Securities

Energy Field Capital Labour Labour Energy Marketing, Distribution & Sales R & D Resources Pollution Risk Capital Logistics & Transport Legal, Taxes & Administration Trade Barriers

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Productivity Gains Arise from Lower Inflation, Not Necessarily Higher Wages

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Source: ISQ, LBS Economic Research and Strategy

Quebec: Average Weekly Earnings

%, Year over Year Nominal Real

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EBITDAL: Labour Being Left Out of the Equation Because of Low Capital Costs is Nothing New

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Profits (Right Scale)

Work Compensation and Business Profits as a % of the U.S. GDP (%)

Work Comp. (Left Scale)

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Case in Point: Ultimately, Lower Wages in Alberta are Tied to Technological Advancements in the Shale Oil Sector in the U.S. Weekly Compensation Rate (in $)

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Digital Revolution: Lower Transportation Costs

Source: US Fed. Aviation Adm., LBS Economic Research and Strategy

Drones Identified by Pilots in the U.S.

• Feb. 2014 – Dec. 2014
• Jan. 2015 - July 2015

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Less Inflationary Pressure from the Energy and Oil Sectors

• Short-term perspective: uncertainty and consolidation in the oil

sector: rebound in oil prices to US$80 within a year.

• The world, and the U.S. in particular, still relies on fossil fuels

but …

• …Technology: other, less costly energy sources; substitution

possible.

• Global energy demand to increase by 50% by 2040. However,
• wing to energy efficiency, the portion of spending that goes

towards energy should decrease. The inflationary effect should therefore diminish.

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OPEC Cuts Needed? To Bring Inventories to a Suitable Level

32.134 mb/j juin 2015 Source: LBS Economic Research and Strategy, Bloomberg

OPEC Oil Production (Thousands of Barrels a Day)

32.134 tb/d June 2015

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Median Age in Quebec in 25 years: 45

Current Median Ages in Japan and Germany

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2013 2038 Change 2013 2038 Change Canada 40.2 43.9 3.7 15 24 9 Nfld./L. 44.2 53.3 9.1 17 35 17 P.E.I. 43.1 47.7 4.6 17 28 11 N.S. 43.8 49.6 5.8 18 31 13 N.B. 43.9 49.8 5.9 18 31 14 Quebec 41.5 45.2 3.7 17 25 9 Ontario 40.3 44.3 4.0 15 25 10 Manitoba 37.7 40.6 2.9 14 21 6 Sask. 37.1 41.1 4.0 14 21 7 Alberta 36.0 39.7 3.7 11 19 7 B.C. 41.7 44.9 3.2 16 25 9 Median Age (Years) Proportion Aged 65 and over (%) Median Age and Proportion Aged 65 and Over Source: Statistics Canada, LBS Eco. Res. * Moderate Growth Scenario M1

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Demographics, Devaluation and Deflation: the Japanese Experience does Not Necessarily Apply to Quebec

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Yen/US$ (Right Scale)

Nikkei Stock Index

(Left Scale)

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Outlook on Market Returns: the Risk of Another “Missing GDP”

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Real U.S. GDP

($CST 2009)

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Summary

• A new revolution will make labour costs even lower, with

corresponding impacts on unemployment and labour force participation in Quebec, among other things.

• Multipolar world: economic integration of Quebec with the U.S.

and the ROC, and to a lesser extent Asia.

• Domestic players more likely to impede growth of real GDP in

Quebec over the long term.

• Productivity gains, which are difficult to calculate, will not

necessarily bring higher wages.

• Because of a number of global factors, it is increasingly likely

that inflation will remain lower and that the central banks will need to set other objectives.