Promoting Canada s Economic and Financial Well-Being in an Uncertain World

Transcription

1 Promoting Canada s Economic and Financial Well-Being in an Uncertain World Remarks to the Thompson Chamber of Commerce Thompson, Manitoba 17 November 2011 Jean Boivin Jean Boivin Deputy Governor Bank of Canada

2 Outline Economic Outlook Tki Taking a Step Back: Recession to Recovery The Bank s Four Key Responsibilities: Monetary policy Financial stability Funds management Currency 2

3 Economic Outlook 3

4 Europe: Mild recession modest recovery Euro-area real GDP across economic cycles; start of recession = 100, quarterly data Start of the recession Index Years before the start t of the recession Years after the start of the recession Range of past recessions (1980 onward) Current cycle The Big Five modern financial crises Base-case projection Note: The Big Five modern financial crises as described in Reinhart and Rogoff (2008) are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). See C.M. Reinhart and K.S. Rogoff, "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," American Economic Review: Papers and Proceedings 98, no. 2 (2008): Sources: Eurostat and Organisation for Economic Co-operation and Development 4

5 United States: Subdued growth in line with recoveries following severe financial crises U.S. real GDP across economic cycles; start of recession = 100, quarterly data Start of the recession Index Years before the start of the recession Years after the start of the recession Range of past U.S. recessions (1948 onward) U.S. current cycle The Big Five modern financial crises Base-case projection Sources: U.S. Bureau of Economic Analysis and Organisation for Economic Co-operation and Development 5

6 Rebuilding wealth in the United States will take time US$ billions Wealth lost since 2007 peak Annual savings at current rates Sources: U.S. Bureau of Economic Analysis, U.S. Federal Reserve and Bank of Canada calculations 6

7 October MPR: Commodity prices and Canadian dollar had fallen, but were still elevated Monthly data: Bank of Canada commodity price index Index Daily data: Canadian dollar Index July Report US$ Source: Bank of Canada All commodities (US$) Non-energy commodities (US$) Crude oil (US$) Last observation: October 2011 CERI: Canadian-dollar dollar effective exchange rate index (against U.S. dollar, euro, yen, U.K. pound, Mexican peso and Chinese renminbi) (left scale, 1992 = 100) Closing spot exchange rate for Canadian dollar vis-à-vis U.S. dollar (right scale) Source: Bank of Canada Last observation: 21 October

8 Stimulative credit conditions Survey results suggest that credit conditions for Borrowing costs remain at exceptionally low levels Canadian non-financial firms eased further in 2011Q3 Weekly data Balance of opinion % 7.0 % Tightening Easing Overall credit conditions from the Business Outlook Survey** Overall business-lending conditions from the Senior Loan Officer Survey* Last observation: 2011Q3 Source: Bank of Canada calculations Effective business interest rate Effective household interest rate Source: Bank of Canada calculations Last observation: 21 October

9 Domestic demand projected to be weaker, but remains the primary driver of growth Contributions to real GDP growth 3.2 Percentage points * 2013 * -6 Inventories Net exports Government Business fixed investment Housing Consumption GDP Indicates projection Sources: Statistics Canada and Bank of Canada calculations 9

10 Total CPI and core inflation to decline in 2012, returning to 2 per cent by the end of 2013 Year-over-year percentage change, quarterly data % Control range Target Core CPI* Total CPI excluding effects of the HST and changes in other indirect taxes Base-case projection Base-case projection for total CPI excluding effects of the HST and changes in other indirect taxes Total CPI *CPI excluding eight of the most volatile components and the effect of changes in indirect taxes on the remaining components Sources: Statistic Canada and Bank of Canada calculations and projections 10

11 Risks Main upside risks More persistent global inflationary pressures Stronger-than-expected than expected momentum in household expenditures in Canada More decisive policy actions in major advanced economies Main downside risks Failure to contain the crisis in Europe U.S. recession would have material adverse consequences in Canada Sharper-than-expected deceleration in household spending in Canada Risks to the inflation outlook in Canada are roughly balanced 11

12 Economic outlook: Manitoba Private sector forecasts: Moderate growth averaging 2.2% in 2011 and 2.3% in Global weakness will dampen growth in manufacturing sector. Employment is relatively flat, but the labour market remains tight. Wage gains have been strong. Adverse weather and flooding early in year are expected to lower crop yields. Overall, the mining sector (non-energy and energy mining) is still contributing to growth. 12

13 GDP growth in Manitoba Annual GDP growth (per cent) 5.0% 40% 4.0% Private sector forecast 3.0% 2.0% 1.0% 0.0% ** 2012** ** Mean of Private Sector Forecasts for Manitoba Sources: Statistics Canada, -1.0% 13

14 Taking a Step Back: Recession to Recovery 14

15 The Great Recession in Canada Sharp decline in economic activity in G-7 countries Rapid increase in number of unemployed: roughly 30 million globally almost equal to the entire population of Canada Canada not epicentre of crisis, but contagion spread quickly to Canada 15

16 A milder recession in Canada Real GDP 2007Q1 = 100, quarterly data Index Inflation rates Year-over-year percentage change in total CPI, monthly data % Canada United States Euro area Canada United States Euro area Sources: Statistics Canada, U.S. Bureau of Economic Analysis,and Eurostat Last observation: Q2 and Q Sources: Statistics Canada, U.S. Department of Labor and Eurostat Last observation: September

17 Not worse than the most recent recessions... Real GDP in Canada Comparison of real GDP across economic cycles; quarter before the downturn in real GDP = 100, quarterly data Index Years before the downturn Years after the downturn Sources: Statistics Canada and Bank of Canada calculations Current cycle cycle cycle 17

18 ... but exports take a significant hit Comparison of real exports across economic cycles; quarter before the downturn in real GDP = 100, quarterly data Index 120 Years before the downturn Years after the downturn Current cycle cycle cycle Sources: Statistics Canada and Bank of Canada calculations 18

19 A resilient household sector Comparison of real consumption across economic cycles; quarter before the downturn in real GDP = 100, quarterly data Index Years before the downturn Years after the downturn Current cycle cycle cycle Sources: Statistics Canada and Bank of Canada calculations 19

20 Canada s policy rate during the Great Recession Monthly data % 5 Conditional commitment April 2009 to mid Conditional on the outlook for inflation Sources: Statistics Canada and Bank of Canada Target for the overnight rate Last observation: October

21 The Bank of Canada s Four Key Responsibilities 21

22 Mandate The Bank of Canada s mandate is to contribute to the economic well-being of Canadians: through monetary policy aimed at keeping inflation low, stable and predictable promoting a stable and efficient financial system providing banking services to the federal government and key financial system players supplying secure, quality bank notes 22

23 Key responsibilities: Monetary policy Our objective: to foster confidence in the value of money by keeping inflation low, stable and predictable A means to an end a stable, well-functioning economy Allows consumers, businesses, and investors greater certainty about future purchasing power of savings and income Lowers nominal and real interest rates Encourages more stable economic growth and lower, lessvariable unemployment 23

24 Flexible inflation-targeting regime Since 1991, Bank of Canada has targeted inflation under an agreement with Government of Canada Agreement renewed last week for five years Key elements of Canada s monetary policy framework: Symmetry Flexibility Flexible exchange rate 24

25 Monetary policy: Low and stable inflation CPI annual averages, year-over-year percentage change % Note: Data for 2011 are current to September Source: Statistics Canada Total CPI Core CPI Control range Target 25

26 Key responsibilities: Financial system Our objective: To promote the stability and efficiency of the financial system, in Canada and globally Bank of Canada collaborates with other federal regulatory players and international partners Bank of Canada: No direct regulatory role, other than oversight of systemically important market infrastructures Collaboration through various committees (e.g., FISC, SAC, HoA) Lender of last resort 26

27 Extraordinary liquidity support in response to the crisis Weekly par value outstanding t at tbank of fcanada liquidity idit facilities Can$ billions December 2007 June 2008 December 2008 June 2009 December 2009 June 2010 December 2010 Term Loan Facility Term PRAs for Private Sector Instruments Term purchase and resale agreements (PRAs) Source: Bank of Canada Last observation: 30 December

28 Key responsibilities: Funds management Our objective: To provide effective banking services to the federal government and key financial system players. This involves: managing Canada s foreign exchange reserves, the federal government s cash balances and federal debt in collaboration with the Department of Finance administering the Canada Savings Bonds program providing the means of final settlement of daily flows of payment among financial institutions 28

29 Key responsibilities: Currency Bank notes are the central bank s most tangible product The Bank of Canada is responsible for ensuring that Canada s bank notes are readily accepted and secure from counterfeiting e 29

30 Secure, quality bank notes Counterfeit Canadian bank notes detected for each one million genuine notes outstanding Parts per million Source: Bank of Canada Last observation:

31 Transparent, holographic polymer bank notes More secure, more economical, better for the environment 31

32 New bank notes training 70,000 police officers and 5 million cash handlers need education Goal: reach 60 per cent of cash handlers in cash-intensive organizations by 2013 Banks Gas stations Convenience stores Fast-food merchants Top retail organizations 1,200 cash-intensive companies often the target of counterfeiters 32

33 Bank of Canada Regional Director Leo Ledohowski Board Member Board of Directors 33

34 Bank of Canada Regional Representatives Alexander Fritsche Senior Regional Representative (Economics) Calgary Ted Mieszkalski Senior Regional Representative (Currency) Calgary 34

35 Thank you 35