Western Leaders Forum November 26, 2014 An Economic Outlook: Global to Local

Transcription

1 Western Leaders Forum November 26, 2014 An Economic Outlook: Global to Local Douglas Porter, Chief Economist and Managing Director BMO Financial Group

2 Ontario: A place to grow? November 26, 2014 Douglas Porter, CFA Chief Economist, BMO Financial Group douglas.porter@bmo.com A presentation of BMO Capital Markets Economic Research

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4 Market volatility (as of November 25, 2014) Stocks Record Canadian dollar (US$/C$) 5 US 10-year Treasury yield (percent) S&P 500 (lhs) Record TSX (rhs) lines: weekly averages record dots: daily close Oil prices slide Global outlook: Still hazy after all these years 2 US economy strengthening But Europe stagnates Japan knocked down temporarily China soft landing in question more stimulus Wildcards: Russia/Ukraine Iraq/Syria Terrorism Ebola epidemic

5 Global GDP: Some good, some bad, some ugly :Q3 (y/y % chng) Real GDP China 7.3 India (e) 5.1 UK 3.0 Australia (e) 3.0 (e) 2.5 US 2.4 Mexico 2.2 Eurozone Russia Brazil (e) World Emerging markets Japan -1.1 G (e) = estimate Another sub-par year North American growth pick-up in (q/q % chng : ar) Real GDP US US 0-3 Weather -6 forecast US to outpace : 2014:Q3 = BMO Capital Markets estimate

6 Jobless rates: US falling, but... 5 Unemployment rate (percent) [33-year low] 5.9% 10.0% 8.7% 6.5% 5.8% 4.4% Ontario 6.5% forecast US participation rate: Lowest since 1978 US London 7.5% Toronto 7.9% Greece 25.9 Spain 24.0 Portugal 13.6 Italy 12.6 Ireland 11.2 France Australia 6.2 UK 5.9 US 5.8 Germany 5.0 Japan 3.6 US consumer positives 6 United States 120 Confidence¹ (1985 = 100) 21 Auto sales (mlns : 3-mnth ma) 3 Job growth (y/y % chng) 2 8-yr high yr high 18 8-yr high ¹ Source: Conference Board Bonus: Gas prices, mortgage rates

7 Will Canadian housing calm, correct, crash? : Why isn t immune to a US-style housing crash Maclean s Will Canadian housing calm, correct, crash? : Inside the great real estate crash of : s housing crash begins Maclean s Canadian Business 2011: s housing bubble deemed close to bursting CBC News 2010: s housing bubble: An accident waiting to happen 2009: Why s housing bubble will burst CCPA The Tyee 2008: s housing bubble could soon burst US investment firm

8 Canadian house prices: Regional divide 9 (y/y % chng : as of October 2014) Existing home prices¹ Calgary Toronto Vancouver London-St. Thomas 2 Victoria 0.9 Ottawa 0.3 Montreal 0.1 Saskatoon -0.4 Regina Average home price (y-t-d avg) $461,000 $566,000 $813,000 $408,000 $255,000 $499,000 $364,000 $329,000 $341,000 $317, Sales up 7% in October ¹ HPI composite benchmark where available ² Average home price The other divide... still ($000s : local currency : nsa) Average home price $420,000 65% US¹ $255, ¹ Single-family homes

9 Canadian consumers: Borrowing slows Households¹ Debt ratio (ratio to personal disposable income) 15 Debt growth² (y/y % chng) US Crossover US Debt ratio off record highs ¹ Households, nonprofits and unincorporated businesses ² Consumer credit and residential mortgages only What s ahead for Ontario? 12 Opportunities: Stronger US demand and weaker C$ is a winning combination for exports and manufacturing Healthy levels of infrastructure spending Sturdy population growth (GTA, K-W, Guelph) Challenges: $12.5 billion budget deficit: Spending restraint? Tax increases? Cost competitiveness in manufacturing Ageing population

10 Ontario vs : Unemployment rates even again 13 (ppts) minus Ontario jobless rate 4 Ontario stronger US boom 3 2 Tech boom Record auto production 1 0 Ontario weaker Even Population flows to Ontario (000s of persons : 4-qtr ms) 14 Immigration/migration to Ontario International Net interprovincial

11 Dutch disease? 15 (2000 = 100) Employment by industry Mining and oil & gas extraction Manufacturing 75 Record low Alberta vs the rest 16 (y/y % chng) Real GDP¹ Employment² (3-mnth ma) Retail sales³ (3-mnth ma) AB BC ON MB QC NS NB PE SK NL SK AB BC ON PE MB NB QC NS NL AB BC SK MB NB ON NL PE NS QC ¹ 2014 forecast ² October 2014 ³ September 2014

12 Provincial deficits: Making progress FY14/15 (% of GDP) Budget balance 17 British Columbia Alberta Saskatchewan Manitoba Ontario Quebec New Brunswick Nova Scotia Prince Edward Island Newfoundland and Labrador All provinces Federal Quebec: Before GF transfers $0.3 bln $1.4 bln $0.1 bln -$0.4 bln -$12.5 bln -$1.0 bln -$0.4 bln -$0.3 bln $0.0 bln -$0.5 bln -$13.4 bln -$2.9 bln deficit surplus Ottawa s finances in good shape Federal budget balance C$ blns 20 2 % of nominal GDP Prior trough forecast¹ Budget balanced by 2015 ¹ Source: 2014 Federal Budget

13 Canadian political landscape Federal election Latest polls¹ 2011 Stephen Harper [Conservatives] Thomas Mulcair [NDP] (%) Votes (%) Seats Conservatives NDP Liberals Bloc Québécois Justin Trudeau [Liberals] Other ¹ Weighted average poll At least 4 provincial elections next year (Saskatchewan, Manitoba, Newfoundland and Labrador, Prince Edward Island) Canadian dollar: Closer to the mark 20 Loonie dips below 90 Bank of changes tune Commodities softening US$ rebounds...less demand for safety

14 C$ prognosis: Parity past (as of November 25, 2014) 1, C$ parity C$¹ (rhs) BoC commodity price index² (lhs) ¹ (US ) ² (1972 = 100) actuals: weekly averages forecast: monthly averages forecast 60 Bank of : A different tune Canadian dollar (US : as of November 25, 2014) parity Poloz takes over at BoC (June 1, 2013) Bank of Governor Stephen Poloz Monetary policy stance appropriate

15 Inflation off the lows 23 Consumer price index (y/y % chng) 4.5 United States 4.5 Total CPI (latest month) Total Core 1.8% 1.7% Total Core 2.4% 2.3% Brazil India Japan US China UK 1.3 forecast BoC sees higher inflation as temporary Eurozone Ontario: 2.8% Inflation and deflation 24 Consumer price index (y/y % chng : as of October 2014) Deflationary Home entertainment equipment -6.2 Camera equipment -5.9 Tomatoes -5.9 Sugar -5.6 Computer equipment -5.5 Coffee -4.6 Household furniture -2.9 Cereal products -2.0 Personal care supplies -1.0 Inflationary Natural gas 20.1 Beef 19.4 Pork 14.4 Cigarettes 11.5 Water charges 6.1 Electricity 5.6 Clothing 3.8 Tuition fees 3.2 Property taxes 2.2 Core CPI 2.3% Overall CPI 2.4%

16 Interest rates: 2015 hikes come into view (% : as of November 25, 2014) Overnight rate US 1.00% forecast US 10-year bonds US 2.30% 1.98% % [Year-end 15] 2.65% Record lows 0%-0.25% US at zero for 7 years? Yields slide despite QE tapering Global diversity 26 Equity markets (% chng) year-to-date (as of November 25, 2014) Japan Nasdaq S&P 500 DJIA Germany Australia UK TSX India Russia China Brazil India China Nasdaq S&P 500 TSX DJIA Brazil Japan Germany UK Australia Russia Tables turn for TSX

17 Outlook in a nutshell 27 Global growth to improve modestly despite risks US recovery to strengthen Less fiscal drag Housing recovery still key pulled along Exports finally benefit Housing slows, but no crash Interest rates: Modest upward drift Exchange rates: Improving economy drives US dollar higher Stocks: Bull market to continue, but pace to slow