Economic outlook: Manitoba in the middle May 17, 2016 Douglas Porter, CFA Chief Economist, BMO Financial Group douglas.porter@bmo.com 416-359-4887 Please refer to the next page for Important Disclosures A presentation of BMO Capital Markets Economic Research www.bmocm.com/economics 1-800-613-0205
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Markets volatile, but better (as of May 13, 2016) 2200 Stocks Record 22000 1.08 Canadian dollar ($/C$) 4.8 10-year government bond yield (percent) 1800 1400 1000 S&P 500 (lhs) TSX (rhs) Record 600 08 10 12 14 16 lines: weekly averages 18000 14000 10000 6000 record dots: daily closes 1.00 0.92 0.84 0.76 parity 13-year low 0.68 08 10 12 14 16 Oil prices the big driver 4.0 3.2 2.4 1.6 Record 0.8 08 10 12 14 16 1 Global GDP: Mixed and sluggish 2015:Q4 (y/y % chng) Real GDP India 7.3 China [Q1] 6.7 Australia Mexico 2.5 3.0 UK Eurozone [Q1] [Q1] [Q1] 1.5 2.1 1.9 Japan Russia Brazil -5.9-3.8 0.5 0.8 14 15 16 17 World 3.4 3.1 2.8 3.0 Emerging markets 4.7 3.9 3.7 3.8 G7 1.7 1.8 1.5 1.8-8 -6-4 -2 0 2 4 6 8 Average growth 2000-10: 4% 2
North American growth divergence narrows (y/y % chng) Real GDP 5.0 14 15 16 17 2.5 1.2 1.6 2.1 2.4 2.4 1.8 2.3 2.5 0.0 0.5% y/y -2.5 forecast -5.0 04 06 08 10 12 14 16 Wildfires a new drag: No growth in Q2 : 2016:Q1 = BMO estimate 3 Jobless rates: falling fast not so much Unemployment rate (percent) 10 9 8 7 6 5 [33-year low] 5.8% 10.0% 8.7% 4.4% 4 06 08 10 12 14 16 forecast 7.1% 5.0% Greece 24.4 Spain 20.4 Portugal 12.1 Italy 11.4 France 10.0 Ireland 8.4 7.1 Australia 5.7 5.0 UK 5.0 Germany 4.2 Japan 3.2 Winnipeg Manitoba 6.3 6.1 4
Oil price collapse in perspective ($/bbl) Crude oil¹ 160 120 80 40 Real² Nominal recession 0 70 75 80 85 90 95 00 05 10 15 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 -3.0 0.8 SK AB -2.6-3.9 AB NL -1.6-2.0 Oil producers -6 0 6 12-6 0 6-4 0 4 ¹ February 2016 ² Survey of Employment, Payrolls and Hours (February 2016) ³ BMO forecast 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 -3.3 -$10.4 bln Saskatchewan -0.3 -$0.3 bln Manitoba -0.9 -$0.6 bln Ontario -0.5 -$4.3 bln Quebec 0.5 $2.0 bln New Brunswick -1.0 -$0.3 bln Nova Scotia 0.3 $0.1 bln Prince Edward Island -0.2 -$0.01 bln Newfoundland and Labrador -6.2 -$1.8 bln All provinces -0.8 -$15.4 bln Federal -1.5 -$29.4 bln deficit surplus -3.0-7.5-1.5 0.0 1.5 Quebec: Before GF transfers Sources: Federal and provincial budgets/fiscal updates 8
Ottawa: Red is the new Black Federal government budget balance (C$ blns) 70 Net government debt (% of GDP) 20 60 0 50 (e) -20 40 Federal 30-40 20 All others crossover coming forecast¹ -60 10 89 96 03 10 17 90 95 00 05 10 15 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 $698,000 10.3 $502,000 Winnipeg 2 1.7 $284,000 Montreal Ottawa 1.3 1.1 $337,000 $370,000 Edmonton Saskatoon Calgary 2-3.5-2.4-1.2 $365,000 $335,000 $454,000-6 0 6 12 18 24 30 36 ¹ HPI composite benchmark where available ² Average home price (y-t-d) Winnipeg sales up 8% y/y in April 10
Canadian consumers: Still borrowing Households¹ 1.8 Debt ratio (ratio to personal disposable income) 15 Debt growth² (y/y % chng) 1.6 crossover 1.4 10 1.2 5 1.0 0.8 0 0.6 90 95 00 05 10 15-5 05 07 09 11 13 15 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 20 15 Winnipeg 10 Toronto 5 Calgary 0 97 99 01 03 05 07 09 11 13 15 12
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 = 0.86 0.88 60 WTI oil price¹ 0.84 50 40 0.80 $46.2 $0.773 0.76 C$² 30 0.72 20 Jan 15 Apr Jul Oct Jan 16 Apr 0.68 ¹ ($/bbl : lhs) ² ($/C$ : rhs) 14
Canadian dollar: How high? Canadian dollar 108 ( : as of May 13, 2016) Year-end 2015 72.3 2016 77.0 2017 78.5 100 parity 92 Poloz takes over at BoC (June 1, 2013) 84 76 Bank of Governor Stephen Poloz 68 11 12 13 14 15 16 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 5.5 9.3 1.5 1.5 China 2.3 0.0 Core 0.9% 0.0 Core 1.3% 1.3 0.9 UK 0.5-1.5-1.5 Japan 0.0 forecast -3.0-3.0 09 11 13 15 17 09 11 13 15 17 high versus industrial world Eurozone -0.2-4 0 4 8 12 Manitoba: 0.9% 16
Interest rates: More rate hikes coming eventually (% : as of May 16, 2016) 7 6 5 Overnight rate 10-year bonds Year-end 7 Year-end 2016 0.50 0.75-1.00 2016 1.55 2.15 2017 1.00 1.25-1.50 6 2017 1.80 2.50 Current 0.50 0.25-0.50 Current 1.27 1.70 forecast 5 4 4 3 3 2 2 1 0 01 04 07 10 13 16 BoC: On hold 1 0 07 09 11 13 15 17 Record spread 17 Global stocks: Tables turn Equity markets (% chng) 2015 2016 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 500-0.7 DJIA 0.6 Australia -0.8 S&P 500 0.1 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 -11.1 Japan -13.8 Brazil -13.3 China -17.6-20 -10 0 10 20-30 -15 0 15 30 18
Election 2016: Wildcard United States Potential market mover: Trump: Sanders: Clinton: Anti-trade Anti-Wall Street Anti-TPP 19