AWF Economic Update. What to Expect in 2014: Forecast for BC Businesses and Outlook for the Global Economy Sponsored by: Jill Leversage

Transcription

1 AWF Economic Update What to Expect in 2014: Forecast for BC Businesses and Outlook for the Global Economy Sponsored by: Jim Allworth Jill Leversage Jock Finlayson

2 AWF Economic Update What to Expect in 2014: Forecast for BC Businesses and Outlook for the Global Economy Sponsored by:

3 Jim Allworth, Investment Strategist & Co-Chair RBC Dominion Securities Global Portfolio Advisory Committee Jim Allworth has been in the investment business since 1968, as both a research analyst and portfolio strategist. He is vice-chair of the RBC Capital Markets Investment Strategy Committee, which provides direction on the outlook for financial markets to the rest of the firm and to our clients. Through nearly four decades at RBC Dominion Securities, Jim has played a key role in developing investment policy for the firm and translating that work into solutions for individual clients. He is the RBC Dominion Securities investment strategist and Co-Chair of the Global Portfolio Advisory Committee.

4 The Economy in 2014: Poised for Lift-Off? presented to Association of Women in Finance Vancouver, BC February 12, 2014 Jock Finlayson Executive Vice President and Chief Policy Officer

5 Some Improvement in the Global Economic Picture 5 Underlying pace of economic growth in the US is accelerating Eurozone has finally emerged from recession although growth remains anemic across much of the EU Japan is seeing positive GDP growth and seems to be emerging from a long period of deflation UK economy has also been gaining strength However Economic activity has slowed across the emerging markets Inflation is running below the levels targeted by central banks in most advanced economies Commodity prices have weakened significantly since late 2011

6 Change in Real GDP from the Pre-Recession Peak ( ) to Q Canada United States Germany France Japan Finland Britain Euro area Ireland Spain Portugal Italy Greece -22.8% -5.4% -6.4% -7.0% -8.0% -0.2% -0.4% -2.0% -2.6% -3.0% 2.3% 5.8% 5.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% Source: IMF; Eurostat.

7 Rock Bottom Central Bank Policy Rates US Canada Euro Area Japan % 08 Q1 08 Q3 09 Q1 09 Q3 10 Q1 10 Q3 11 Q1 11 Q3 12 Q1 12 Q3 13 Q1 13 Q3 Source: Bank of Canada.

8 A Young Ben Bernanke Practicing for his Future Role as Fed Chairman 8

9 US Real Per Capita GDP Finally Eclipsed the Pre-Recession (2007) Peak US Real GDP per Capita, quarterly SA, Q4 2007= Source: US Bureau of Economic Analysis Latest: Q3 2013

10 But US Employment Has Not Fully Recovered US Non-farm Payrolls, millions Source: US Bureau of Economic Analysis latest January 2014

11 Canada Led the G7 in Economic Growth from GDP Growth Since 2000 (% annualized) Canada U.S. U.K. France Germany Japan Italy Source: RBC Global Asset Management.

12 Canada s Economic Growth Dynamic: Time to Shift Gears Consumer spending has been running above its long-term average as a proportion of GDP Household debt/disposable income ratio at a record high (although credit growth has slowed) Residential investment as % of GDP also above the long-term average (almost 6.8%, versus 5.8%) Ratios of housing prices to i) incomes and ii) rents are near all time highs So future economic growth will have to rely more on net exports and business investment and less on consumerand housing-related spending 12

13 Snapshot of North American Household Finances (Q3, 2013) 13 Canada USA Credit market debt as % of disposable income 152% 137% Net worth as % of disposable income 650% 685% Savings as % of disposable income 5.4% 5.0% Mortgages 90+ days delinquent (% of all mortgages) Credit card 90+ days delinquent (% of total balances outstanding) 0% 2.6% 1% 9% Source: RBC Economics.

14 The Economist Magazine s House-Price Indicators 14 Under (-) / Over (+) valued, against* Rents Income** Hong Kong +84 na USA New Zealand China Germany Australia Britain Sweden Under (-) / Over (+) valued, against* Rents Income** Ireland -6-8 Canada France Japan Italy Spain Netherlands * Relative to long-run average ** Disposable income per person Source: The Economist.

15 Interest Rates Stay Low Canadian Interest Rates, monthly averages, % 3 month T-bill 10 yr Bond Yields Source: Bank of Canada. Latest: January 2014

16 The Sinking Loonie US $ per Canadian $, monthly averages with quarterly forecasts history TD Scotiabank BMO Source: Bank of Canada, noon rate Latest: Jan 2014

17 Canadian Forecast Sunnier Days Ahead Real GDP (% change) Unemployment rate Housing starts (000s) CPI (total change in %) Year Gov t bond yield (Q4) Source: Scotiabank Economics, January 30, 2014.

18 2013 Global Competitiveness Index Rankings 18 Country Population (millions) GDP per capita (current US$) 2013 Rank (n=148) Country Population (millions) GDP per capita (current US$) 2013 Rank (n=148) Switzerland ,033 1 Singapore ,162 2 Finland ,098 3 Germany ,513 4 United States ,922 5 Sweden ,158 6 Hong Kong SAR ,667 7 Japan ,736 9 United Kingdom , Norway , Taiwan, China , Qatar , Canada , Denmark , Netherlands ,142 8 Sources: World Bank (2013); World Economic Forum (2012, 2013).

19 BC Economic Setting a disappointing year -- weak output growth; zero job growth Domestic demand hindered by stretched consumer finances, soft retail sales, lower business investment, government fiscal drag Conditions should improve over , with stronger global growth, a rebounding US, and rising BC exports Construction investment (non-residential) is expected to provide a major economic boost over the medium-term LNG the opportunity is significant, but mainly relevant post-2015

20 BC s Job Market Stalls in ,340 BC Employment, 000s 2,320 2,300 2,280 2,260 2,240 actual S.A. moving average 2, Source: Statistics Canada, seasonally adjusted, moving average. latest January 2014

21 Consumer Spending Is Picking Up After A Period of Weakness Retail Sales, Y/Y % change BC Alberta Saskatchewan Source: Statistics Canada, 3 month moving averages. latest November 2013

22 Cross Border Shopping Soars BC Same Day Border Crossings, thousands, S.A Source: Statistics Canada, BCBC for seasonal adjustment * Latest: October 2013

23 Some Recent Gains in Exports 23 2,200 2,000 1,800 BC International Merchandise Exports, millions $ US all other countries 1,600 1,400 1,200 1, Source: BC Stats. Latest: December 2013

24 Diversified Trade: A Long-Term BC Advantage (average annual share of international goods exports by province, 2012, per cent) 24 BC Alberta Ontario China, 18.4% Other Asia, 9.9% Other, 14.2% Asia, 7.0% Other, 6.5% Asia, 3.5% Other, 18.6% Japan, 13.2% US, 44.3% US, 86.5% US, 77.9% Source: BC Stats.

25 Residential Investment: Large Role in BC s Economy Residential Investment as a Share of GDP, % BC Canada Source: Statistics Canada, Provincial Economic Accounts.

26 High Level of Project Investment Activity in BC 26 Capital cost of major projects already underway = $83 billion. Plus another >$150 billion of proposed projects identified in the Major Projects Inventory (includes LNG, oil pipelines and Site C) Some current/imminent non-residential capital investments of note» Rio Tinto Alcan smelter modernization ($3.3 billion)» South Fraser Perimeter Road (almost complete)» Evergreen Line» Port Metro Vancouver capital program» Port of Prince Rupert and Ridley Terminal expansions» YVR expansion/upgrading» Northwest Transmission Line (Highway 37 power corridor)» Other significant BC Hydro capital projects + some IPP projects» Expansion of existing mines, plus some new mines expected to come on stream» Development of several new office/retail complexes in lower mainland» Hospital upgrades (various regions)

27 Competition for Immigrants Heats Up 27 60,000 50,000 Immigration by Province, persons BC Alta Sask 40,000 30,000 20,000 10,000 0 Source: Statistics Canada.

28 28 The only function of economic forecasting is to make astrology look respectable John Kenneth Galbraith

29 BC Economic Forecast (annual per cent change unless otherwise indicated) a 2013a 2014f 2015f Real GDP e Employment Unemploy. rate (%) Housing starts all areas (units) 27,500 26,400 23,500 23,500 Retail sales BC CPI Sources: Statistics Canada and BC Stats; Business Council for forecasts. a actual f forecast e- estimate

30 BC s Economic Position in Canada: Three Metrics 30 Real GDP per person, 2012 BC $45,993 (5 th among provinces) Average Weekly Earnings, 2013 BC $882 (5 th among provinces) Labour Productivity: real output per hour worked, business sector, 2012 BC $43.60 (6 th among provinces) Alberta $74,201 Alberta $1,062 Alberta $68.50 Sask $53,865 Sask $924 Nfld. $68.10 Nfld $52,359 Nfld $923 Sask $58.30 Ontario $46,177 Ontario $901 Ontario $44.10 Canada $47,809 Canada $885 Quebec $43.90 Canada $47.70 Source: Statistics Canada Provincial Economic Accounts.

31 Top 100 Most Profitable Companies in BC in 2013 (BIV) Ranked by 2012 net income % of Number Profit Mining % Financial % Technology % Industrial/Forestry % Consumer % Real Estate 5 0.8% Oil & Gas 3 4.0% Crown Corp % Media 3 9.9% Insurance 2 0.3%

32 So How Did We Do Forecasting Last Year? BC Economic Forecast (annual per cent change unless otherwise indicated) 2011a 2012a 2013f 2013a 2014f Real GDP Employment Unemploy. rate (%) Housing starts 26,400 27,500 24,500 26,400 23,500 all areas (units) Retail sales BC CPI

33 Near Unanimous View for a Positive 2014 What are the risks most likely to derail the feel good story for 2014? Managing the change to the C$ dollar New Governor of Bank of Canada China dependence Impact of regulation - delaying development projects In migration and impact on real estate

34 Managing the change to the dollar and the impact on BC companies Decline of C$ more precipitous than anticipated Many hedging programs less active in the last few years

35 Bank of Canada s broadening focus New head of Bank Canada and the Federal Reserve creates some uncertainty about decision making

36 China dependence The emerging markets are playing increasingly important roles in economic activity. China now sets the pricing of most commodities. If China gets the flu, North America has a cold.

37 Impact of delays in development projects BC finally acknowledging future dependent on continuing to provide natural resources to emerging markets Struggling to find the balance between economic sustainability and environmental concerns Delays to major projects such as LNG may cause loss of competiveness in future markets

38 Impact of in migration on Lower Mainland Real Estate Lower Mainland real estate continues show Supply/Demand challenges Lower Mainland real estate constrained by lack of incremental supply and challenging transportation growth Calgary has greater price volatility because they still have an ability to increase supply

39 Now its your turn to forecast Please fill in card with your name and the following: Interest rate Exchange rate TSX Index Come back next year to check the accuracy of your forecast

40 AWF Economic Update What to Expect in 2014: Forecast for BC Businesses and Outlook for the Global Economy Sponsored by: Questions & Answers