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

SEPTEMBER 6, 2016 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 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

2 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 World Growth Outlook, real GDP % change 8 World 7 Advanced Economies 6 Emerging Economies 5 4 3 2 1 0 2010 2011 2012 2013 2014 2015 2016 2017 Source: IMF World Economic Outlook, July 2016 and Historical Database.

3 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 Growth in global exports, % 15 Average, 1987-2007 10 5 0 -5 -10 -15 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* * Forecast. Source: IMF. Data refer to the volume of exports.

4 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 Productivity Growth (% Yr/Yr) Avg 2004-07 2.0 Avg 2010-14 1.7 1.6 1.6 1.5 1.35 1.18 0.9 0.9 1.0 0.85 0.7 0.5 0.3 0.0 US Canada EZ UK OECD Total Source: OECD, CIBC World Markets.

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

6 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 • 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

7 U S E M P L O Y M E N T S U R G E S US Non-Farm Payrolls, millions 146 US payrolls increased by 2.9 144 million jobs in 2015, second 142 largest gain since 1999 140 138 136 134 132 130 128 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Latest: August 2016 Source: US Bureau of Economic Analysis. seasonally adjusted data

8 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 Forecast US Housing Starts, SA, thousands 1500 1300 1100 900 700 500 300 07 08 09 10 11 12 13 14 15 16 Latest: July 2016 Source: US Census Bureau, seasonally adjusted data.

9 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 2.5 Real GDP Growth in G-7 Countries, 2005-2014 (%) 1.9 2.0 1.6 1.5 1.3 1.2 0.9 1.0 0.7 0.6 0.5 0.0 -0.5 -0.4 Canada U.S. Germany U.K. France E.U. Japan Italy • Data from the OECD place Canada at the top of the G-7 in overall economic growth in the decade ending in 2014 Source: OECD Economic Outlook, No. 97, June 2015.

10 … 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 ) 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Oil and gas related industries Non-energy commodity Rest of the economy industries • Resource-related industries, representing ~20% of Canadian GDP, have accounted for most of the recent weakness in the Canadian economy Source: Bank of Canada Monetary Policy Report. .

FAC T O R S S H AP I N G C AN A D A’ S 11 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 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

12 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 % 7 Bank of Canada overnight policy rate 6 Effective household rate Effective business rate 5 4 3 2 1 0 Source: OECD Economic Surveys.

13 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 thousands Quebec and Atlantic provinces 16 Ontario 12 Alberta British Columbia 8 Alberta goes 4 negative 0 -4 -8 2008 2009 2010 2011 2012 2013 2014 2015 1 Atlantic provinces include New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador. Source: OECD Economic Surveys.

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 14 R AT E S B Y B R O AD R E G I O N 1 % Total 11 Energy-producing provinces oil 10 provinces Rest of Canada now 9 higher 8 7 6 5 4 2008 2009 2010 2011 2012 2013 2014 2015 2016 1 Data from the Labour Force Survey. Energy-producing provinces include Alberta, Saskatchewan, and Newfoundland and Labrador. Source: OECD Economic Surveys.

15 TO P G L O B AL O I L P R O D U C E R S 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 1 includes products Source: International Energy Agency.

16 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 * Energy share of Canadian merchandise exports, % 30% 25% 20% 15% 10% 5% 0% 1994 2004 2013 2014 2015 *Merchandise exports only; excludes services Source: CIBC World Markets.

17 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 Country share of total US merchandise imports, per cent 25 Canada Canada Mexico China down 20 5.3 percentage points 15 since 1990 10 5 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2015 Source: Desjardins Economic Studies, Economic News, February 17, 2016.

18 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 US$ per Cdn$, monthly averages with quarterly forecasts 1.10 history 1.05 Scotiabank 1.00 RBC 0.95 CIBC 0.90 40-yr average 0.85 0.80 OECD PPP estimate 0.75 0.70 0.65 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Latest: August 2016 Source: Bank of Canada, noon rate.

19 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 % 170 160 150 140 130 120 110 100 90 80 1990 1995 2000 2005 2010 2015 Source: OECD Economic Surveys.

20 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 % 250 200 150 100 50 0 SVN CHL CZE ITA DEU GRC FRA BEL USA ESP FIN JPN PRT GBR CAN IRL SWE AUS NOR NLD DNK 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.

21 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 • Nationally, home resales reached new y/y growth in average prices* % 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 Latest: May 2016 *Jan to June * six month moving averages Source: Statistics Canada, LFS.

22 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 % 60 40 20 0 -20 -40 KOR JPN PRT GRC DEU USA FIN CHE IRL ITA ESP DNK NLD FRA GBR NOR CAN BEL AUS NZL SWE 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.

23 L AB O U R P R O D U C T I V I T Y 1 200 Index 1990 = 100 Canada 180 Australia the labour productivity United States 160 gap with the US has more than tripled 140 since 2000 120 100 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 1 In the business sector. Source: OECD Economic Surveys.