BC ECONOMIC BACK DROP AND DEMOGRAPHICS

Transcription

1 SEPTEMBER 30, 2016 BC ECONOMIC BACK DROP AND DEMOGRAPHICS PRESENTED TO THE BC FINANCIAL HEALTHCARE PROFESSIONALS SOCIETY CONFERENCE KEN PEACOCK Chief Economist and Vice President

2 2016: SHAPING UP TO BE ANOTHER DIFFICULT YEAR (ECONOMICALLY SPEAKING)! Global economic forecasts are revised down twice since January 2016 Five central banks have set negative policy rates (ECB, Japan, Denmark, Sweden and Switzerland) Bond yields hover near all-time lows in many advanced economies more than US$12 trillion in sovereign debt is trading at negative nominal yields! The UK votes to leave the EU; could others follow? China s equity market struggles, capital outflows accelerate, debt mounts, and doubts persist whether the country can avoid a hard landing Mixed economic data spark episodic concern about the (lengthy) American economic expansion Donald Trump secures the Republican Party nomination for President, promising radical changes to US trade, foreign and immigration policies if he wins 2

3 GLOBAL ECONOMY LOST MOMENTUM POST World Growth Outlook, real GDP % change World Advanced Economies Emerging Economies Source: IMF World Economic Outlook, April 2016 and Historical Database.

4 BUT AT LEAST THE US ECONOMY IS STILL EXPANDING 4 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 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 budget positions improve Recent forecasts suggest the US economy will grow by % (after-inflation) in 2016/17 Interest rate hikes by the Federal Reserve will be slow to come in the next 2 years

5 US EMPLOYMENT SURGES US Non-Farm Payrolls, millions US payrolls increased by 2.9 million jobs in 2015, second largest gain since Latest: August 2016 Source: US Bureau of Economic Analysis. seasonally adjusted data

6 HOUSING STARTS CONTINUE TO GRIND HIGHER US Housing Starts, SA, thousands Forecast Latest: July 2016 Source: US Census Bureau, seasonally adjusted data.

7 CANADIAN BOND YIELDS PLUMB THE DEPTHS Year Gov t of Canada Bond Yields, % Latest: May 2016 Source: Statistics Canada.

8 A BUMPY RIDE FOR THE CANADIAN DOLLAR US$ per Cdn$, monthly averages with quarterly forecasts history Scotiabank RBC CIBC 40-yr average OECD PPP estimate Latest: August 2016 Source: Bank of Canada, noon rate.

9 FACTORS SHAPING CANADA S ECONOMIC PERFORMANCE IN Negative impact Largely tapped out and increasingly indebted consumers pointing to weaker growth in consumer spending going forward Anticipated slowdown in housing-related investment Weak/declining business capital spending Still sluggish commodity markets (natural resources = 50% of Canada s merchandise exports) Positive impact Federal government budget deficit will provide some near-term support to aggregate demand Moderate US economic expansion (Some) gains in non-energy exports Continued low interest rates and low Canadian dollar

10 CANADIAN ECONOMIC ROTATION UNEMPLOYMENT RATES BY BROAD REGION 1 10 % Total Energy-producing provinces Rest of Canada Data from the Labour Force Survey. Energy-producing provinces include Alberta, Saskatchewan, and Newfoundland and Labrador. Source: OECD Economic Surveys.

11 TRIFURCATION OF CANADIAN HOUSING MARKETS 11 y/y growth in average prices* % Nationally, home resales reached new highs in the first half of 2016 Strength in national market masks regional divergence Greater Vancouver house prices climbed 30% in the year to June 2016 but have fallen recently Housing markets in Vancouver and Toronto supported by in-migration, foreign capital inflows, and robust job growth * six month moving averages Latest: May 2016 *Jan to June Source: Statistics Canada, LFS.

12 AN UPDATED ECONOMIC FORECAST FOR CANADA Real GDP Growth (% change) Real consumer spending (% change) Real business investment (% change) Unemployment rate (%) Current account balance (% of GDP) Housing starts (000) Corporate profits (% change, pre-tax) Source: BMO Economics, Sept 2016

13 CANADIAN HOUSEHOLD DEBT TO DISPOSABLE INCOME 13 % Source: OECD Economic Surveys.

14 HOUSEHOLD INDEBTEDNESS RATIO, CANADA VS OTHER OECD COUNTRIES, Q % 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. Q for Denmark and Q for Japan. Source: OECD Economic Surveys.

15 THE BC JOB MARKET HAS DEFINITELY PICKED UP BC employment, SA, thousands 2350 employment trend Latest: August 2016 Source: Statistics Canada, LFS.

16 BUT ALL JOB GROWTH HAS BEEN CONCENTRATED IN THE LOWER MAINLAND Employment, indexed Jan 2010= Unemployment rate by region, % 110 lower mainland rest of BC 10 8 May-15 May Van Island Lower Main. Thom. Ok Kootenay Cariboo NC / Northeast Nechako Latest: May 2016 Source: Statistics Canada, LFS.

17 US ACCOUNTS FOR RECENT BC EXPORT GAINS BC int. merchandise exports, millions $ US rest of world South Korea Export growth (Jan-April) by country, annual % chng total India US China Japan Latest: April 2016 Source: BC Stats.

18 BC CONSUMERS ARE SPENDING Retail sales growth, y/y % change BC Alberta Latest: July 2016 Source: Statistics Canada.

19 BC ECONOMIC OUTLOOK (ANNUAL % CHANGE UNLESS OTHERWISE INDICATED) e 2016f 2017f Real GDP Employment Unemployment rate (%) Housing starts (000 units) Retail sales BC CPI f forecast e estimate Source: Statistics Canada and BC Stats; Business Council for forecasts.

20 WHY IS BC OUT- PERFORMING CANADA DESPITE SLUGGISH COMMODITY MARKETS 20 Population growth (fed by in-migration) = greater demand for domestic goods/services Housing sector (residential investment + prices + the impact of foreign money + wealth effects) Competitive benefits of, and inward investment fueled by, a cheap Canadian currency Low interest rate environment (with a high debt burden, this especially helps BC) Plus BC has an increasingly diverse industrial and economic base, which strengthens resilience and limits the impact of downturns in particular sectors: Forest products cluster (logging, wood products mfg, pulp/paper), 35-40% of merchandise exports Tourism (5% of GDP) Advanced technology (7% of GDP) plus film/t.v. production/digital animation Mining and energy The various components of the gateway economy Education sector (now a source of significant export earnings for BC) Clean tech/green economy/environmental services cluster Tradable services (scientific, technical, engineering, design, finance, and professional services)

21 HOUSING IS PROVIDING A BIG ECONOMIC LIFT FOR BC 21 6 BC GDP growth housing complex* and all other industries, % residential housing & related activity all other industries * Includes residential construction, offices of real estate agents and related, and imputed rent. Source: Source: Statistics Canada, CANSIM table , data released November 10, BC Ministry of Finance, Budget and Fiscal Plan for forecasts

22 BC S RELATIVE ECONOMIC POSITION DEPENDS ON HOW OTHER PROVINCES PERFORM Real GDP growth by province, % BC jumps to 1 st spot in 2015, as the previous growth leaders fall into recession BC ranks 5 th in BC Alta Sask Man Ont Que NB NS PEI Nfld Source: Statistics Canada, Provincial Economic Accounts

23 BC POPULATION GROWTH SLOWING BC annual population growth, % Source: BC Stats.

24 BC POPULATION GROWS MOSTLY DUE TO IMMIGRATION Components of BC population change, thousands natural net interprovincial net international Source: BC Stats.

25 NUMBER OF PEOPLE OVER 60 IS THE COHORT THAT WILL GROW 25 2,000 1,800 1,600 1,400 1,200 1, BC population by age cohorts, thousands Source: BC Stats.

26 GROWTH IN WORKING AGE POPULATION REALLY SLOWING BC annual population growth, % Source: BC Stats.

27 HEADING FOR ONE RETIREE FOR EVERY TWO WORKING AGE PEOPLE Number of people 65+ per 100 people aged in BC Source: BC Stats.

28 POPULATION GROWTH CONCENTRATED IN SOUTHWEST Population Growth over 5-year periods shown, % Van Is LM Thom-Ok Kootenay Cariboo Northcoast Nechako Northeast Source: BC Stats.

29 AGING POPULATION MORE PRONOUNCED IN SMALLER COMMUNITIES Number of people 65+ per 100 people aged by region Van Is LM Thom-Ok Kootenay Cariboo Northcoast Nechako Northeast Source: BC Stats.

30 POPULATION GROWTH CONCENTRATED SOUTHWEST 30 Population, 000s Van CMA 2700 rest of BC Population increase, 000s Van Lower Thom. Island Main. Ok North Coast Kootenay Cariboo Nechako Northeast Source: BC Stats..

31 INTERPROVINCIAL MIGRATION LIFTS POPULATION GROWTH 31 15,000 BC Net Migration, quarterly SA, persons 10,000 5, ,000-10,000 Interprovincial International Latest: Q Source: BC Stats, BCBC for seasonal adjustment.

32 NET INFLOW FROM ALBERTA PICKS UP BC-Alberta migration, SA 4000 Net BC-Alberta migration, SA BC to Alta Alta to BC Latest: Q Source: Statistics Canada.

33 RECAP Subdued and choppy global economy will continue through 2016 and perhaps beyond 33 A generally uninspiring near-term outlook for Canada, with hopes largely riding on US expansion Interest rates will remain low and rate hikes in Canada will lag the US BC should comfortably outpace Canada in GDP and job growth in Growth in working age population continues to slow over coming decade BC s population and labour force grows essentially because of in-migration Interprovincial migration a source of workers over the next few years Population steadily aging with rural parts of the province facing the biggest demographic challenges