O U R E C O N O M I C P R O S P E C T S I N A S L O W - G R O W - - PowerPoint PPT Presentation

O U R E C O N O M I C P R O S P E C T S I N A S L O W - G R O W T H W O R L D

SEPTEMBER 6, 2016

PRESENTED TO

B C B C / A B I C A B O R I G I N A L E C O N O M I C D E V E L O P M E N T A N D P R O S P E R I T Y F O R U M

JOCK FINLAYSON, Executive Vice President and Chief Policy Officer and KEN PEACOCK Chief Economist and Vice President Business Council of British Columbia

T H E G L O B A L E C O N O M Y R E M AI N S S T U C K I N L O W G E AR

2 Source: IMF World Economic Outlook, July 2016 and Historical Database.

1 2 3 4 5 6 7 8 2010 2011 2012 2013 2014 2015 2016 2017 World Growth Outlook, real GDP % change World Advanced Economies Emerging Economies

FALT E R I N G G AI N S I N I N T E R N AT I O N A L T R AD E

3 * Forecast. Source: IMF. Data refer to the volume of exports.

• 15
• 10
• 5

5 10 15 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Growth in global exports, % Average, 1987-2007

A S U R P R I S I N G P R O D U C T I V I T Y S L O W D O W N AC R O S S T H E O E C D

4 Source: OECD, CIBC World Markets.

1.6 0.9 1.35 1.6 1.7 0.9 0.7 1.18 0.3 0.85

0.0 0.5 1.0 1.5 2.0 US Canada EZ UK OECD Total Productivity Growth (% Yr/Yr) Avg 2004-07 Avg 2010-14

S E V E N P L U S Y E AR S O F R E C O R D L O W C E N T R AL B AN K I N T E R E S T R AT E S

Bank of Canada.

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15 Q1 16Q1 Central bank policy rates, % US Canada Euro Area Japan

AM E R I C A’ S E C O N O M I C E X PAN S I O N C H U G S AL O N G

6

• Real GDP grew 2.4% in 2015, the same as 2014
• But growth eased to just ~1% (annualized) in the first half of 2016, reflecting the strong US dollar, soft

global economy and plunging investment in the oil and gas sector

• However…
• 78 consecutive months of employment gains
• consumption spending is trending higher
• housing starts are slowly climbing, should reach ~1.2 million this year
• lower energy prices are a (net) economic plus for the US…in the medium-term
• fiscal drag is diminishing as state/local government budgetary positions improve
• Recent forecasts suggest the US economy will grow by 1.5 - 2.1% (after-inflation) in 2016/17
• Interest rate hikes by the Federal Reserve will be slow to come in the next 2 years

U S E M P L O Y M E N T S U R G E S

7 Latest: August 2016 Source: US Bureau of Economic Analysis. seasonally adjusted data

128 130 132 134 136 138 140 142 144 146 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 US Non-Farm Payrolls, millions US payrolls increased by 2.9 million jobs in 2015, second largest gain since 1999

H O U S I N G S TAR T S C O N T I N U E TO G R I N D H I G H E R

8 Latest: July 2016 Source: US Census Bureau, seasonally adjusted data.

300 500 700 900 1100 1300 1500 07 08 09 10 11 12 13 14 15 16 US Housing Starts, SA, thousands Forecast

C AN A D A P R E V I O U S LY L E D T H E G - 7 I N E C O N O M I C G R O W T H

9 Source: OECD Economic Outlook, No. 97, June 2015.

• Data from the OECD place Canada at the top of the G-7 in overall economic growth in the

decade ending in 2014

1.9 1.6 1.3 1.2 0.9 0.7 0.6

• 0.4
• 0.5

0.0 0.5 1.0 1.5 2.0 2.5 Canada U.S. Germany U.K. France E.U. Japan Italy Real GDP Growth in G-7 Countries, 2005-2014 (%)

… B U T O U R E C O N O M Y H I T T H E S K I D S I N 2 0 1 5

( Y / Y % C H A N G E I N R E A L G D P F R O M 2 0 1 4 ) 10 Source: Bank of Canada Monetary Policy Report. .

• Resource-related industries, representing ~20% of Canadian GDP, have accounted for most
• f the recent weakness in the Canadian economy
• 4.0%
• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% Oil and gas related industries Non-energy commodity industries Rest of the economy

FAC T O R S S H AP I N G C AN A D A’ S E C O N O M I C P E R F O R M AN C E I N 2 0 1 6 - 1 8

11

Negative impact

• Increasingly indebted households – pointing to weaker growth in consumer spending going forward
• Anticipated slowdown in housing-related investment
• Declining business investment; plus eroding industrial competitiveness vis-à-vis US and Mexico
• Still relatively weak commodity markets (energy, most metals, other industrial raw materials)

Positive impact

• Federal government fiscal stimulus, including higher infrastructure spending
• Moderate US economic expansion
• Continued low interest rates and low(er) Canadian dollar
• A rebound in some non-energy exports

C AN A D I A N I N T E R E S T R AT E S AT / N E A R R E C O R D L O W S

12 Source: OECD Economic Surveys.

1 2 3 4 5 6 7 Bank of Canada overnight policy rate Effective household rate Effective business rate %

C AN A D I A N E C O N O M I C R O TAT I O N - N E T I N T E R P R O V I N C I A L M I G R AT I O N F L O W S

13

1 Atlantic provinces include New Brunswick, Nova Scotia,

Prince Edward Island and Newfoundland and Labrador. Source: OECD Economic Surveys.

• 8
• 4

4 8 12 16 2008 2009 2010 2011 2012 2013 2014 2015 Quebec and Atlantic provinces Ontario Alberta British Columbia thousands

Alberta goes negative

C AN A D I A N E C O N O M I C R O TAT I O N – S H I F T I N G U N E M P L O Y M E N T R AT E S B Y B R O AD R E G I O N 1

14

1 Data from the Labour Force Survey. Energy-producing provinces

include Alberta, Saskatchewan, and Newfoundland and Labrador. Source: OECD Economic Surveys.

4 5 6 7 8 9 10 11 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Energy-producing provinces Rest of Canada %

• il

provinces now higher

TO P G L O B AL O I L P R O D U C E R S

15

1 includes products

Source: International Energy Agency.

Crude Oil (mmbpd) Top Producers 1 1993-2013 Average 2014 US 8.1 11.7 Russia 8.2 10.4 Saudi Arabia 7.8 9.7 Canada 3.0 4.3 China 3.5 4.1 Iraq 1.8 3.3 Iran 3.3 2.8 UAE 2.1 2.8 Kuwait 2.1 2.8 Mexico 3.3 2.8

E N E R G Y ’ S P L AC E I N C AN A D A’ S E X P O R T M I X *

16 *Merchandise exports only; excludes services Source: CIBC World Markets.

0% 5% 10% 15% 20% 25% 30% 1994 2004 2013 2014 2015 Energy share of Canadian merchandise exports, %

C AN A D A H AS L O S T G R O U N D I N T H E U S M AR K E T

17 Source: Desjardins Economic Studies, Economic News, February 17, 2016.

5 10 15 20 25 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015

Country share of total US merchandise imports, per cent

Canada Mexico China

Canada down 5.3 percentage points since 1990

A B U M P Y R I D E F O R T H E C AN A D I A N D O L L AR

18 Latest: August 2016 Source: Bank of Canada, noon rate.

0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 04 05 06 07 08 09 10 11 12 13 14 15 16 17 US$ per Cdn$, monthly averages with quarterly forecasts

history Scotiabank RBC CIBC

OECD PPP estimate 40-yr average

C AN A D I A N H O U S E H O L D D E B T TO D I S P O S AB L E I N C O M E

19 Source: OECD Economic Surveys.

80 90 100 110 120 130 140 150 160 170 1990 1995 2000 2005 2010 2015 %

H O U S E H O L D I N D E B T E D N E S S R AT I O , C AN A D A V S O T H E R O E C D C O U N T R I E S , Q 4 2 0 1 5 1

20

1 Total household outstanding debt as a percentage of household gross disposable income.

Q4 2014 for Denmark and Q1 2015 for Japan. Source: OECD Economic Surveys.

50 100 150 200 250

SVN CHL CZE ITA DEU GRC FRA BEL USA ESP FIN JPN PRT GBR CAN IRL SWE AUS NOR NLD DNK

%

T R I F U R C AT I O N O F C AN A D I A N H O U S I N G M AR K E T S

21 Latest: May 2016 *Jan to June Source: Statistics Canada, LFS.

y/y growth in average prices* %

* six month moving averages

• Nationally, home resales reached new

highs in H1 2016

• Average prices up 10% y/y to June
• Strength in national market, however,

masks growing divergence across regions

• Greater Vancouver house prices climbed

>30% in the year to June 2016

• Markets in Vancouver and Toronto have

been supported by in-migration, foreign capital inflows, and robust job growth

C AN A D I A N H O U S E P R I C E S AR E H I S TO R I C A L LY H I G H R E L AT I V E TO I N C O M E S , Q 1 2 0 1 6 1

22

1 Deviation of the ratio of nominal house prices/nominal disposable income per capita over the long-term average. The long-term average

starts in Q1 1980 for most countries, with a few exceptions. The price-to-income ratio starts in Q1 1981 for Denmark, Q1 1986 for Korea and New Zealand, Q1 1987 for the United Kingdom, Q1 1995 for Portugal and Q1 1997 for Greece. The latest observation is Q4 2015/Q1 2016. Source: OECD Economic Surveys.

• 40
• 20

20 40 60

KOR JPN PRT GRC DEU USA FIN CHE IRL ITA ESP DNK NLD FRA GBR NOR CAN BEL AUS NZL SWE

%

L AB O U R P R O D U C T I V I T Y 1

23

1 In the business sector.

Source: OECD Economic Surveys.

100 120 140 160 180 200 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Canada Australia United States Index 1990 = 100 the labour productivity gap with the US has more than tripled since 2000

AN U P D AT E D E C O N O M I C F O R E C AS T F O R C AN A D A

24 Source: RBC Economics, August 2016

2015 2016 2017 Real GDP Growth (% change) 1.1 1.3 1.8 Real consumer spending (% change) 1.9 2.0 2.0 Real business investment (% change)

• 10.6
• 8.6

1.8 Unemployment rate (%) 6.9 7.0 6.8 Current account balance (% of GDP)

• 3.2
• 3.0
• 2.0

Housing starts (000) 196 191 181 Corporate profits (% change, pre-tax)

• 15.8
• 1.1

7.9

B C ’ S R E L AT I V E E C O N O M I C P O S I T I O N D E P E N D S I N PAR T O N H O W O T H E R P R O V I N C E S P E R F O R M

25 Source: Statistics Canada, Provincial Economic Accounts

• 4
• 2

2 4 6 BC Alta Sask Man Ont Que NB NS PEI Nfld Real GDP growth by province, % 2013 2015

BC ranks 5th in 2013 BC jumps to “1st spot” in 2015, as the previous growth leaders fall into recession

T H E B C J O B M AR K E T H AS R E B O U N D E D

26 Latest: July 2016 Source: Statistics Canada, LFS.

2200 2250 2300 2350 2400 2450 2010 2011 2012 2013 2014 2015 2016 BC employment, SA, thousands employment trend

B U T J O B G R O W T H H AS B E E N C O N C E N T R AT E D I N T H E L O W E R M AI N L A N D

27 Latest: July 2016 Source: Statistics Canada, LFS.

95 100 105 110 115 120 10 11 12 13 14 15 16 Employment, indexed Jan 2010=100 lower mainland rest of BC 2 4 6 8 10 Van Island Lower Main. Thom. Ok Koot- enay Cariboo NC / Nechako North- east Unemployment rate by region, % Jul-15 Jul-16

R E S O U R C E S S T I L L D O M I N AT E B C ’ S G O O D S E X P O R T S

28 Source: BC Stats.

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

2003 2012 2014

Non-resource-based exports

B C E C O N O M I C O U T L O O K

( A N N U A L % C H A N G E U N L E S S O T H E R W I S E I N D I C A T E D ) 29 f – forecast Source: Statistics Canada and BC Stats; Business Council for forecasts.

2014 2015 2016f 2017f Real GDP 3.2 3.0 2.7 2.6 Employment 0.6 1.2 3.0 1.5 Unemployment rate (%) 6.1 6.2 6.1 5.9 Housing starts (000 units) 28.4 31.4 39.0 38.0 Retail sales 5.5 6.5 6.5 5.5 BC CPI 1.2 1.1 1.6 1.6

AS S E S S I N G B C ’ S O V E R AL L C O M P E T I T I V E N E S S *

30

General/Cross-Sectoral Strengths

• Rich natural resource base
• Workforce talent and strong PSE system
• Quality of life
• Proximity to large markets
• Global connections/networks
• Relatively low corporate tax rate
• Gateway sector and infrastructure assets
• Clean environment
• Relatively healthy provincial gov’t finances

General/Cross-Sectoral Weaknesses

• Uncompetitive features of the broad business tax

regime (PST on business inputs, municipal property tax system, escalating government fees/levies not linked to profitability)

• Very complex regulatory environment, esp. for

land-based and infrastructure industries

• Highest fossil fuel costs in North America;

dwindling competitive advantage in power costs

• Paucity of investment incentives compared to

many other jurisdictions, notably in the US

• BC (like Canada) is a slow-moving jurisdiction
• perating in a dynamic, fast-changing world

* Based on analyses by the BC Jobs and Investment Board and the Business Council.

B C L AG S I N C AP I TA L I N V E S T M E N T

31 * Tangible Investment Source: C.D. Howe Institute

71 87 57 69

10 20 30 40 50 60 70 80 90 100 % of US % of OECD Average Investment* per worker as a share of US and OECD average 2014, % Canada BC

BC vs US BC vs OECD

B C H AS A H I G H M AR G I N A L E F F E C T I V E TAX R AT E O N B U S I N E S S

32 Source: “The 2014 Global Tax Competitiveness Report,” D. Chen and J. Mintz, School of Public Policy, University of Calgary, SPP Research Papers, Volume 8, Issue 4, February 2015.

Marginal Effective Tax Rates, Average of all Industry Sectors Combined, %

2014 2011 2005

Canada 18.8% 18.8% 38.8% BC 27.5% 19.0% 39.2% Alberta 17.0% 18.2% 31.7% Ontario 18.2% 19.3% 43.3% Quebec 15.2% 17.5% 36.1% USA 35.3% 35.3% 35.9% Japan 29.3% 31.5% 31.5% Australia 25.9% 25.9% 25.9% UK 23.7% 27.2% 30.0% Germany 24.4% 24.0% 34.0% France 36.0% 35.1% 35.4% Sweden 16.1% 19.5% 20.9%

BC now has the 6th highest average METR among the ten provinces and 34 OECD countries combined, as well as the 2nd highest average METR in Canada

… AL S O T H E H I G H E S T C AR B O N P R I C E I N N O R T H AM E R I C A

33 Notes: RGGI is made up of 9 states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. RGGI market applies to electricity only. Alberta Specified Gas Emitters Regulation only applies to facilities who emit more than 100,000 tonnes per year. Payment is only for incremental emissions. California protects 47 sectors and 94 related industrial activities. Quebec protects the following industries: Aluminium, lime, cement, chemical and petrochemical industry, metallurgy, mining and pelletizing, pulp and paper, petroleum refining, glass containers, electrodes, gypsum products, some agri-food establishments.

$3.88 $6.80 $15.00 $16.43 $16.43 $30.00

5 10 15 20 25 30 35 2016 carbon prices, $ Cad Carbon price = $0 BC almost 2x next highest jurisdiction

AV E R A G E P R O V I N C E - W I D E M U N I C I PAL P R O P E R T Y TAX R AT I O S ( B U S I N E S S V E R S U S R E S I D E N T I A L , 2 0 1 4 * )

34 * For BC municipalities that report tax revenue under each class heading

7.7 6.9 3.9 2.6 1 2 3 4 5 6 7 8 9 Utilities Major industry Light industry Business/commercial

W O R L D P O P U L AT I O N P R O J E C T I O N S

35 Sources: BC Investment Management Corporation; United Nations Department of Economic and Social Affairs.

1.2 1.3 5.7 8.0

2 4 6 8 10 1950 1970 1990 2010 2030 2050 Less developed regions Developed regions 2010 total = 6.9 billion 2050 total = 9.3 billion

Population by region using U.N. medium variant projection (billions of people)

E M E R G I N G M AR K E T C O N S U M P T I O N W I L L R E AC H $ 3 0 T R I L L I O N B Y 2 0 2 5 , N E AR LY H AL F O F G L O B A L TO TA L

36 Sources: McKinsey & Company, McKinsey Global Institute.

$ Trillions

26 34 12 30

Developed Emerging 2025 64 2010 38 Brazil 3 India 10 China 8 Total 30 1 Other Poland 1 Turkey 1 Indonesia 1 Mexico Russia 2 3 World consumption Emerging market consumption in 2025

F U T U R E G R O W T H O F W O R L D E N E R G Y D E M AN D C O N C E N T R AT E D I N AS I A

37 Sources: McKinsey & Company, McKinsey Global Institute.

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 1990 1995 2000 2005 2010 2011 2015 2020 2025 2030

Energy Consumption by Region, millions tonnes oil equivalent

S & C America Europe & Eurasia Africa Middle East Asia Pacific North America

R E C AP

38

• The current choppy, risk-prone global economic environment is expected to persist through 2017

– and perhaps beyond

• A fairly muted economic outlook for Canada, with hopes largely riding on the US
• BC is set to outpace Canada in GDP and job growth in 2016-17, supported by a rising population plus

strength in retail, tourism, advanced technology, film production and construction

• The continued, gradual rise of Asian (and other) emerging markets in the global economy will create

future growth opportunities for BC (and Canada) – for energy & other resource products, tourism, educational services, professional and technical services, shipping/gateway services, etc.

• Looking ahead, BC faces competitiveness headwinds stemming from elements of the business tax

structure, complex regulatory regimes and permitting processes, high land/housing costs in urban areas, and the aggressive strategies being deployed by other jurisdictions to attract investment and

• ther high-value business activity