Jump-Starting Canadian Growth. Aron Gampel, Scotiabank Economics March 15, 2016

Transcription

1 Jump-Starting Canadian Growth Aron Gampel, Scotiabank Economics March 15, 216

2 Persistent Headwinds To Stronger Global Growth Insufficient Aggregate Demand Reinforced By Structural And Cyclical Factors Debt and deleveraging Structural economic adjustments in EMEs Oversupply conditions Banking sector oversight and profitability Financial market volatility and risk aversion Low inflation and deflation Geopolitical risks 2

3 Markets And The Economy Go Hand In Hand On The Upside

4 And On The Downside

5 Heightened Financial Market Volatility And Stress Levels Equity Markets High-Yield Bond Market 4 % index % 35 S&P Energy VIX Non-Energy Source: Bloomberg, Moody s, Scotiabank Economics.

6 Global Interest Rates Plumb Historic Lows, And Even Below Zero! -Year Government Bond Yields 6 % 5 Value of Bonds Outstanding* With Negative Yields US$ trillions U.K. U.S Germany 3 1 Japan Canada * All outstanding maturities included in Bloomberg Global Developed Sovereign Bond Index. Source: Bloomberg, Scotiabank Economics.

7 Economic Divergence Is Triggering Monetary Policy Divergence 6 Central Bank Rates % U.S. Inflation y/y % change forecast forecast Core PCE 2. U.S Euro zone 1. 1 Canada U.K. Headline PCE Source: Bank of Canada, U.S. Federal Reserve, Bloomberg, Scotiabank Economics.

8 Economic Divergence Is Triggering Monetary Policy Divergence 6 Central Bank Rates % U.S. Inflation Expectations % Euro zone forecast U.S. 5Y5Y USD Inflation Swap Canada U.K Source: Bank of Canada, U.S. Federal Reserve, Bloomberg, Scotiabank Economics.

9 September, October, December, January, March,. 9

10 US$ Strength, Other Currency Weakness Currencies vs. U.S. Dollar Currencies vs. U.S. Dollar exchange rate vs. US$ index, 2Q1 = Renminbi Euro forecast exchange rate vs. US$ index, 2Q1 = Australian Dollar forecast Canadian Dollar Yen Mexican Peso Source: Bloomberg, Scotiabank Economics.

11 Global Growth Trends Have Moderated World Real GDP Real GDP 6 annual % change 6 y/y % change average 4.5% 2-15 average 3.8% forecast 3.4% 5 4 Emerging Markets World Developed Nations forecast forecast Source: IMF, Scotiabank Economics.

12 Sub-Par Economic Performances Persist Around The World Real GDP annual % change 8 6 Advanced Countries Emerging Market Countries e 216f 217f 2-7 average -4 U.S. Canada U.K. Euro zone Japan World India China Mexico South Korea Brazil Source: Bloomberg, IMF, Scotiabank Economics.

13 China s Economic Transition Is Aggravating Demand/Supply Conditions China Real GDP y/y % change 35 Commodity Prices index January 24= 9 8 Services Energy Metals & Minerals 7 Total 15 Agriculture 6 Goods 5 Forestry

14 World Trade Is Still Low And Slow Little Traction In World Trade Exports And Imports Need A Boost 22 y/y % change 22 y/y % change World Trade Volumes 6 Exports Imports Source: CPB Netherlands Bureau For Economic Policy Analysis, Scotiabank Economics.

15 Moderate Global Growth Is Pressuring Commodities And The C$ WTI Oil & The Canadian Dollar Commodity Prices US dollars per barrel US cents index, 27Q1 = 1 9 Canadian Dollar Copper WTI Oil WTI Oil Natural Gas f Source: Bloomberg, Scotiabank Economics.

16 Oh No Canada!!! 16

17 Slip Sliding Away!!! 17

18 Oil Market Fundamentals Are Slow To Turn Supply/Demand Fundamentals Global Oil Fundamentals 6 4 y/y % change Global Oil Demand y/y % change U.S. Crude Oil Production y/y % change Global Oil Supply forecast 4 Global Oil Stocks Source: Bloomberg, International Energy Agency.

19 Canada s Highly Imbalanced Economic Performance 1 8 Canadian Real GDP index: Jan 213 =, 3-mma Non-Energy Commodity- Related Industries 15 5 Canadian Consumption & Business Investment annual % change, constant dollars forecast 6 Consumption Rest of the Economy Business Investment Oil & Gas Related Industries Source: Bank of Canada, Scotiabank Economics. 19

20 Orders Are Still Soft Around The World, But U.S. Prospects Improving Awaiting More Global Orders U.S. Orders No Signs Of Lift-Off 6 58 index 6 month annualized % change y/y % change Global New Orders (LHS) Global Industrial Production (RHS) Six-Month Trend Capital Goods Orders Excluding Aircraft & Defense * Source: U.S. Census Bureau, CPB Netherlands Bureau For Economic Policy Analysis, Scotiabank Economics. 2

21 U.S. Employment And Domestic Demand Is Relatively Strong U.S. Labour Market U.S. Consumer Purchases cumulative job gains, s Unemployment Rate (RHS) % 11 9 Motor Vehicle Sales Home Sales Housing Starts Job Gains (LHS) index, 27Q1 = Source: Statistics Canada, Census Bureau, BEA, NAR, Scotiabank Economics. 21

22 U.S. Employment And Domestic Demand Is Relatively Strong U.S. Labour Market U.S. Demand & Canadian Exports cumulative job gains, s Unemployment Rate (RHS) % y/y % change U.S. Domestic Demand Canadian Exports Job Gains (LHS) Source: Statistics Canada, Census Bureau, BEA, NAR, Scotiabank Economics. 22

23 Canadian Exports Are Gaining Increased Momentum Canadian Export Volumes index, Jan. 2 = Energy Non-Energy Exchange Rate Sensitive Broad-Based And FX-Sensitive Exports Consumer Goods Energy Products Industrial Machinery Forest Products Chemicals & Plastics Electronics Aircraft & Parts Autos & Parts Metals & Minerals Agricultural Products 215 % change Source: Statistics Canada, Bank of Canada, Scotiabank Economics.

24 More Leaders, But Western And Eastern Laggards Are A National Issue 3. Real GDP, annual % change f 217f -2. B.C. Alberta Sask. Manitoba Ontario Quebec Atlantic Canada Source: Statistics Canada, Scotiabank Economics. Canada

25 Canada s Three-Speed Housing Market 14 Canadian MLS Home Sales Index January 214 = 7 Housing Starts % share of total 12 B.C. and Ontario 6 5 Single-detached Rest of Canada 4 8 Alberta, Saskatchewan and Newfoundland & Labrador 3 2 Apartments Semi-detached & Row Source: CREA, Scotiabank Economics. Source: CMHC, Scotiabank Economics. 25

26 Canadian Household Finances The Not So Good And The Good Household Debt Burden household credit liabilities as % of disposable income Canada: 165% Net Worth & Delinquency Rates: 9+ days % Household Net Worth yr/yr % change United States: 139% Canada*: 154% Canadian Delinquency Rate *Adjusted to match US methodology. Source: Statistics Canada, US Federal Reserve, Scotiabank Economics. 26

27 Moderate Employment And Wage Gains In Canada Canadian Employment Real Canadian Disposable Income 4 average monthly job gain, s 6 annual % change average: 16k jobs/month forecast 5 4 forecast average: 3% Source: Statistics Canada, Government of Canada, Scotiabank Economics. 27

28 The Pump Is Being Primed For Stronger Canadian and Global Growth Low oil prices Low interest rates Currency realignments Improving U.S. growth Incremental fiscal stimulus Trade agreements 28

29 Back To The Future 29

30 An Increasing Focus On Fiscal Policy 3

31 A Greener And More Costly Future 31

32 Canada s Changing Fiscal Outlook Canada s Federal Budget Balance Net Debt 3 $ billions 8 % of GDP forecast Federal Accumulated Deficit forecast Aggregate Provincial Net Debt

33 Fiscal Policy Moves To The Forefront Government Spending Fiscal Position y/y % change Canada 2 % of GDP Canada Gov t Balance % of GDP forecast -1 2 forecast -2 1 OECD OECD Gov t Spending Source: Statistics Canada, OECD, Scotiabank Economics.

34 Global Forecasts ECONOMIC OUTLOOK f 17f MARKET OUTLOOK f 17f REAL GDP, annual average CURRENCY, end of period U.S Canadian Dollar (USDCAD) Canada Brazilian Real (USDBRL) U.K Euro (EURUSD) Euro zone Mexican Peso (USDMXN) Brazil Chinese Renminbi (USDCNY) Mexico China MONTH T-BILLS, end of period India Canada U.S INFLATION, end of period U.S YEAR BONDS, end of period Canada Canada U.K U.S Euro zone Brazil COMMODITIES, annual average Mexico WTI Oil (US$/bbl) China NYMEX Natural Gas (US$/mmbtu) India Gold, London PM Fix (US$/oz) 1,266 1,16 1,15 1,25 Source: Scotiabank Economics, Bloomberg.

35 Disclaimer TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.