Economic outlook: Manitoba in the middle

Transcription

1 Economic outlook: Manitoba in the middle May 17, 2016 Douglas Porter, CFA Chief Economist, BMO Financial Group Please refer to the next page for Important Disclosures A presentation of BMO Capital Markets Economic Research

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3 Markets volatile, but better (as of May 13, 2016) 2200 Stocks Record Canadian dollar ($/C$) year government bond yield (percent) S&P 500 (lhs) TSX (rhs) Record lines: weekly averages record dots: daily closes parity 13-year low Oil prices the big driver Record Global GDP: Mixed and sluggish 2015:Q4 (y/y % chng) Real GDP India 7.3 China [Q1] 6.7 Australia Mexico UK Eurozone [Q1] [Q1] [Q1] Japan Russia Brazil World Emerging markets G Average growth : 4% 2

4 North American growth divergence narrows (y/y % chng) Real GDP % y/y -2.5 forecast Wildfires a new drag: No growth in Q2 : 2016:Q1 = BMO estimate 3 Jobless rates: falling fast not so much Unemployment rate (percent) [33-year low] 5.8% 10.0% 8.7% 4.4% forecast 7.1% 5.0% Greece 24.4 Spain 20.4 Portugal 12.1 Italy 11.4 France 10.0 Ireland Australia UK 5.0 Germany 4.2 Japan 3.2 Winnipeg Manitoba

5 Oil price collapse in perspective ($/bbl) Crude oil¹ Real² Nominal recession ¹ West Texas Intermediate ² April 2016 dollars Long-term average price = $55 (today s dollars) forecast 5 Regional outlook: Ch-Ch-changes (y/y % chng) Retail sales¹ (3-mnth ma) Employment² 2016 real GDP³ NB 8.8 BC 2.7 BC 3.3 ON 8.0 ON 1.9 ON 2.7 MB 7.1 PE 1.3 MB 2.5 BC 7.1 NB 0.9 QC 1.7 PE 6.5 NS 0.3 NS 1.3 NS 5.9 QC 0.1 PE 1.2 QC 4.0 MB -0.2 NB 0.7 NL 1.5 NL -0.6 SK 0.5 SK AB SK AB AB NL Oil producers ¹ February 2016 ² Survey of Employment, Payrolls and Hours (February 2016) ³ BMO forecast 6

6 What s ahead for Manitoba? Manitoba Strengths: Most stable recent growth performance among all provinces Highly diverse economy Manufacturing and exports benefit from lower loonie Population growth solid Challenges: Budget deficit persists and debt burden rising Workers/industries tied into oil patch struggling Inventory overhang in new home market 7 Provincial deficits: Some progress, some trouble FY16/17 (% of GDP) Budget balance British Columbia 0.1 $0.3 bln Alberta $10.4 bln Saskatchewan $0.3 bln Manitoba $0.6 bln Ontario $4.3 bln Quebec 0.5 $2.0 bln New Brunswick $0.3 bln Nova Scotia 0.3 $0.1 bln Prince Edward Island $0.01 bln Newfoundland and Labrador $1.8 bln All provinces $15.4 bln Federal $29.4 bln deficit surplus Quebec: Before GF transfers Sources: Federal and provincial budgets/fiscal updates 8

7 Ottawa: Red is the new Black Federal government budget balance (C$ blns) 70 Net government debt (% of GDP) (e) Federal All others crossover coming forecast¹ Deficit above $10 billion for 5+ years ¹ Source: 2016 Federal Budget FY15/16 = estimate 9 Canadian house prices: Location, location, location Vancouver (y/y % chng : nsa : as of April 2016) Existing home prices¹ 25.3 Average home price (y-t-d avg) $1,094,000 Toronto 12.6 $698, $502,000 Winnipeg $284,000 Montreal Ottawa $337,000 $370,000 Edmonton Saskatoon Calgary $365,000 $335,000 $454, ¹ HPI composite benchmark where available ² Average home price (y-t-d) Winnipeg sales up 8% y/y in April 10

8 Canadian consumers: Still borrowing Households¹ 1.8 Debt ratio (ratio to personal disposable income) 15 Debt growth² (y/y % chng) 1.6 crossover Debt ratio at record highs, more to come ¹ Households, nonprofits and unincorporated businesses ² Consumer credit and residential mortgages only 11 Office vacancies creeping up (percent) Office vacancy rate Winnipeg 10 Toronto 5 Calgary

9 Canadian dollar: How much will my Florida trip cost? Loonie rebounds from 13-year low Three drivers, three turns: 1. Oil 2. $ 3. Monetary policy Huge three-month rebound for C$ 13 Loonie s fate tied to oil (as of May 13, 2016) 70 r = WTI oil price¹ $46.2 $ C$² Jan 15 Apr Jul Oct Jan 16 Apr 0.68 ¹ ($/bbl : lhs) ² ($/C$ : rhs) 14

10 Canadian dollar: How high? Canadian dollar 108 ( : as of May 13, 2016) Year-end parity 92 Poloz takes over at BoC (June 1, 2013) Bank of Governor Stephen Poloz Similar to other commodity currencies 15 Inflation edging up Consumer price index (y/y % chng) 4.5 United States 4.5 Total CPI (latest month) 3.0 Total 2.2% 3.0 Total 2.1% Brazil India China Core 0.9% 0.0 Core 1.3% UK Japan 0.0 forecast high versus industrial world Eurozone Manitoba: 0.9% 16

11 Interest rates: More rate hikes coming eventually (% : as of May 16, 2016) Overnight rate 10-year bonds Year-end 7 Year-end Current Current forecast BoC: On hold Record spread 17 Global stocks: Tables turn Equity markets (% chng) year-to-date (as of May 13, 2016) Germany 9.6 Russia 21.8 Japan 9.1 Brazil 19.4 Nasdaq 5.7 TSX 5.7 China 5.6 Australia 1.0 S&P DJIA 0.6 Australia -0.8 S&P DJIA -2.2 UK -1.7 Russia -4.3 India -2.4 UK -4.9 Nasdaq -5.8 India -5.0 Germany -7.4 TSX Japan Brazil China

12 Election 2016: Wildcard United States Potential market mover: Trump: Sanders: Clinton: Anti-trade Anti-Wall Street Anti-TPP 19