Transcript Slide 1

BC Recovery Continues Amid
Greater Uncertainty
Presented to: Canadian Association of
Equipment Distributors, BC
April 7, 2011
Ken Peacock
Director Economic Research
A Few Global Themes for 2011
Emerging markets driving global growth
US recovery accelerates
» additional monetary easing (QE2) and accommodative US gov’t fiscal policy
Crisis continues to unfold in Europe (sovereign debt and banking
system)
Middle East turmoil creates a “new” geo-political risk
Commodity prices stay high
» food, fuel, minerals/metals, potash, etc.
Some emerging markets (esp. China) struggling to manage inflation
Global economic rebalancing will continue (a multi-year process)
Earthquake and tsunami in Japan
2
3
World Economic Forecast
Projected growth (per cent)
2010 e
2011 f
2012 f
United States
2.9
2.9
2.7
Euro zone (EU 16)
1.7
1.4
1.6
Japan
3.4
1.0
2.9
China
10.3
9.5
9.7
India
8.7
8.5
8.8
World
4.9
4.4
4.4
Source: Scotiabank Global Economic Research, April 1, 2011.
China Looming Larger
World’s #1 exporter
Surpassed Japan as the second biggest national economy
Accounts for 12-15% of global imports
Largest foreign currency reserves ($2.5 trillion US)
In most years, #1 destination for inbound direct foreign investment
Biggest global consumer of coal, steel, copper, cement, iron ore,
aluminum, etc.
Has eclipsed the US as the world’s largest market for new vehicle
sales
4
US Near-Term Prospects Brighten
Most forecasters now expect growth to exceed 3% in 2011
2010 fiscal and monetary policy actions expected to add one
percentage point to growth this year
Consumer spending is gaining traction
Business investment on the rise
»
low interest rates, strong balance sheets, impact of federal tax incentives
Housing markets remain weak
»
»
housing starts climb to 680,000 this year, up from 590,000 in 2010
prices falling again in many urban markets
Longer term, US faces huge fiscal problems – but these don’t matter
much in 2011
5
6
US Job Picture (finally) Improving
600
US Employment, m/m change, thousands
400
200
0
-200
-400
-600
-800
-1000
05
06
07
Source: US Bureau of Labour Statistics, seasonally adjusted.
08
09
10
11
Latest: March 2011
But an Unusually Deep and Slow Recovery
Source: Calculated Risk.
7
8
Slow Recovery – US Home Building
2,500
US Housing Starts, seasonally adjusted annual rate, thousands
2,000
1,500
1,000
500
0
99
00
01
02
03
Source: US Bureau of Labour Statistics, seasonally adjusted.
04
05
06
07
08
09
10
11
Latest: January 2011
Global Balance of Economic Power is Shifting
Ten Biggest Economies (US$ GDP, billions)*
2009
US
China
Japan
India
Germany
Russia
UK
France
Brazil
Italy
Source: PWC, The World in 2050 (2011).
2050
14,256
8,888
4,138
4,752
2,984
2,687
2,257
2,172
2,020
1,922
China
India
US
Brazil
Japan
Russia
Mexico
Indonesia
Germany
UK
59,475
43,180
37,876
9,762
7,664
7,559
6,682
6,205
5,707
5,628
* Measured in constant 2009 US dollars, at purchasing power parity exchange rates
But…Don’t Underestimate the United States!
GDP Per Capita, 2010 US$, measured at purchasing power parity)
50,000
46,931
45,000
40,000
35,000
40,125
39,110
34,798
33,777
30,000
25,000
US
Australia
Canada
UK
Japan
Despite its recent troubles, the US remains the richest nation among the main advanced
economies, with a per capita GDP 20% higher than Canada’s.
Source: Economist Intelligence Unit.
10
Canadian Picture
Upward revision to Canadian growth for 2011 reflects improved US
outlook and strength in commodities
Growth stronger in the West and Newfoundland
High household debt a worry
Canadian housing markets flat in 2011
Total employment almost back to pre-recession peak
» …but private sector jobs still below previous high
Policy interest rates to rise in second half of 2011 but will stay low
Government fiscal restraint will start to weigh on growth
Canadian dollar also weighing on exports
11
12
Canada/US Comparisons
Fiscal Balance,
% of GDP
120
4
2
0
-2
-4
-6
-8
-10
-12
-14
Government Debt,
% of GDP
110
100
90
80
70
60
50
40
05 06 07 08 09 10 11 12 13 14 15
Canada
Source: IMF, World Economic Outlook.
US
05 03 07 08 09 10 11 12 13 14 15
Canada
US
Canadians Becoming Enthusiastic Borrowers
180
Household Debt as a Share of
Personal Disposable Income, %
160
140
US
120
Canada
100
80
60
1990
Source: TD Economics.
1995
2000
2005
2007
2010
13
14
Interest Rates Will Move Higher
7
Canadian interest rates, monthly with quarterly forecasts, %
forecast
10 year GoC bond yield
6
3-month T-bill
5
4
3
2
1
0
00
01
02
03
04
05
06
07
Source: Bank of Canada, Scotiabank Economic Research and TD Economics for forecasts.
08
09
10
11
12
Surging Loonie Re-Shaping the Competitive Landscape
110
Canada - US Exchange Rate, weekly with quarterly forecasts,
US cents/Cdn$
105
100
95
90
85
80
75
noon rate
TD forecast
RBC forecast
70
65
forecast
60
00
01
02
03
04
Source: Bank of Canada, TD Economics & RBC for forecasts.
05
06
07
08
09
10
11
12
15
16
Canadian Economic Outlook
2010
2011
2012
Real GDP (%)
3.1
3.1
2.6
Real consumer spending (%)
3.4
3.0
2.7
Real business non-residential
investment (%)
5.2
10.9
7.6
Employment (%)
1.4
1.4
1.1
Housing starts (000)
190
175
175
Inflation (all items CPI, %)
1.8
2.5
2.3
Source: Scotiabank Global Economic Research, April 1, 2011.
BC Background
Economy recovering from 2008-09 downturn (but mixed)
Brighter US outlook is positive for 2011
Asia providing a welcome lift
Some pluses/differentiators for BC vs Canada…
» gateway economy (esp. important to Metro Vancouver)
» commodities (coal, minerals/metals, pulp, lumber is picking up)
» in-migration and population growth foster ongoing demand for housing
and consumer goods/services
» relatively solid fiscal/tax setting
» less dependent on US than other provinces
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18
(Very) Modest Job Rebound
5
BC Employment Growth,
annual % change
10
4
BC Unemployment Rate, S.A.,%
9
3
8
2
7
1
0
6
-1
5
-2
4
-3
3
-4
05
06
07
08
09
10
11
05
06
07
08
09
10
1.7% job growth in 2010
Source: Statistics Canada.
Latest: February 2011
11
19
Private Sector Employment Lagging
125
BC Employment by Class of Worker, Indexed 2003=100
16,500 more
jobs in the
public sector
than in July
2008
120
115
Private Sector Employees
Public Sector Employees
63,000 fewer
jobs in the
private sector
than in March
2008
110
105
100
95
2003
Source: Statistics Canada.
2004
2005
2006
2007
2008
2009
2010
2011
Latest: February 2011
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Consumers Hesitant to Spend?
5100
BC Retail Sales, S.A., millions $
4900
4700
4500
4300
4100
3900
3700
3500
04
Source: Statistics Canada.
05
06
07
08
09
10
Latest: January 2011
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Housing Sales Picking Up, but Still Soft
17000
BC Housing Sales and New
Listings S.A., units
25
15000
20
13000
15
11000
10
9000
5
7000
0
5000
sales
-5
3000
listings
-10
-15
1000
04 05 06 07 08 09 10 11
Source: CREA.
Change in Average Price of
Homes Sold in BC, %
04 05 06 07 08 09 10 11
Latest: February 2011
22
Housing Starts Flat
4500
BC Housing Starts S.A., units
4000
3500
3000
2500
2000
1500
1000
500
0
00
Source: Statistics Canada.
01
02
03
04
05
06
07
08
09
10
Latest: February 2011
11
23
Construction Activity Easing
BC Building Permits S.A., millions $
900
800
non res (with trend)
700
residential (with trend)
600
500
400
300
200
100
0
00
Source: Statistics Canada.
01
02
03
04
05
06
07
08
09
10
Latest: January 2011
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Exports Climb…After Slumping in 2009
Annual BC Exports, billions $
35
24 %
decline
30
3,300
3,100
Monthly Exports S.A., millions $
2,900
2,700
2,500
25
20
2,300
2,100
1,900
15
10
5
1,700
1,500
0
02 03 04 05 06 07 08 09 10
US
Source: BC Stats.
Japan
China
rest
06
07
08
09
10
total
Latest: January 2011
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25
Resources Dominate BC’s Exports
10
BC Exports by Commodity, billions $
2004
8
2007
2008
2009
2010
6
4
2
0
Wood Prod
Source: BC Stats.
Pulp &
Paper
Metallic
Mineral
Prod
Natural
Gas
Coal
Mach. &
Equip.
Agriculture
China and Other Markets Driving Export Growth
2,100
BC International Merchandise Exports, S.A. millions $
1,900
US
1,700
Rest of World
1,500
1,300
1,100
900
700
06
Source: BC Stats.
07
08
09
10
Latest: January 2011
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China Buying More Wood!
900
BC Wood Product Exports to China, millions $
800
700
600
500
400
300
200
100
0
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Statistics Canada.
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28
China Buying More BC Pulp Than the US
180
BC Pulp and Paper Exports to China, US, millions $
160
140
120
100
80
60
China
40
United States
20
0
Feb.
2009
Source: Statistics Canada.
Jan.
2010
Jan.
2011
29
Little Improvement for US Wood Sales
300
BC Wood Product Exports to US, millions $
280
260
240
220
200
180
160
140
120
100
Feb.
2009
Source: Statistics Canada.
Jan.
2010
Jan.
2011
30
BC Growth Eases Slightly
BC Economic Forecast – BCBC
actual
forecast
2009
2010
2011f
2012f
Real GDP
-1.8
3.2*
2.8
2.9
Employment
-2.4
2.1
1.9
2.2
Retail sales
-5.7
6.0*
5.0
5.0
Corporate profits
-30.0
15.0*
10.0
10.0
16,100
27,000
24,000
25,000
Housing starts (units)
Source: Business Council, Statistics Canada for history.
*estimates
HST
Reduces business costs (almost $2 billion)
» lowers the cost of investing in machinery, equipment, structures,
technology, etc.
» improves competitive position of exporters
Decreased compliance costs – single tax system
More efficient tax
» avoids cascading tax effect of PST
» a more stable and growing tax base
$1.6 billion in “transition” funding from Ottawa
A few sectors adversely affected
Business savings passed on to consumers
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Equipment Sales: Reasons for Optimism
Business investment poised to rise
Transportation sector – Gateway activity
Mining industry expanding
» construction / pre op: Mt. Milligan, Copper Mountain, Quintette
» final permitting: Tusequah Chief, Kitsalt, Red Chris
Forestry: pulp prices strong; lumber exports growing
Agriculture exports – steady growth
High level of major project investment ($62 billion underway now)
Selected projects: Rio Tinto Kitimat expansion, Kitimat LNG
terminal, Highway 37, transmission lines, Site C, IPPs
Sustained levels of immigration / population growth
32
Risks and Negative Factors
Strong Canadian dollar is impinging on the competitiveness of tradeexposed industries and contributing to current account deficit
Uncertainty over HST
High household debt burdens
Recent job market wobbles / soft domestic economy – blip or trend?
End of government “economic stimulus”
Escalating energy costs (fuel, electricity), geopolitical instability
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Summary and Key Messages
Global economy growing at a reasonable pace
»
»
»
led by emerging economies
US near-term growth prospects have improved, but housing
recovery will be slow
balance of power / economic growth shifting
BC economy is in decent shape
»
»
»
average growth over next couple years
export sector stronger, domestic side softer in 2011
resource industries remain important
Sound fiscal setting (both federal and provincial), although spending
restraint a drag on growth
BC is positioned to succeed, but deliberate and proactive policy work
is necessary
34