Transcript Slide 1

The Global Economy
at a Turning Point:
What it means for Canada
Hendrik Brakel
Senior Director
Economic, Financial and Tax Policy
March 27, 2015
US Economy Gaining Strength
4
3
2
1
0
-1
-2
-3
-4
2009
2010
2011
2012
2013
2014
2015
Source: Federal Reserve Economic Data
2
The US Consumer is Back
(US Consumer Confidence, 1985=100)
160
140
120
100
80
60
40
20
0
90
92
94
96
98
00
02
04
06
08
10
12
14
Source: Conference Board
3
US Job Market Strengthening
(Total Private Sector Employment)
120,000
118,000
116,000
114,000
112,000
110,000
108,000
106,000
104,000
102,000
100,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Sources: US Federal Reserve Board, Haver Analytics
4
US Consumer Debt Way Down
(Debt to Personal Disposable Income)
140.0%
136%
130.0%
120.0%
110.0%
108%
100.0%
90.0%
80.0%
70.0%
60.0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Sources: US Federal Reserve Board, Haver Analytics
5
Debt Payments at 20-year Low
(Debt Payments to Personal Disposable Income, % quarterly)
7
6.5
6
5.5
5
4.5
Sources: US Federal Reserve Board, Haver Analytics
6
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
4
25 months of Rising Home Prices
(S&P Case-Schiller 20 City Home Price Index)
220.00
200.00
180.00
160.00
140.00
120.00
100.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Sources: S&P
2011
2012
2013
2014
7
US Housing is Recovering
(Housing starts, thousands of units)
2500
2000
1500
1000
500
0
1999
2000
2001
2002
Sources: US Census Bureau, NAR, Haver
Analytics
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
8
Retail Sales Healthy
(USD Millions SAAR)
370,000
350,000
4%
330,000
310,000
290,000
270,000
250,000
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Federal Reserve Bank of St. Louis
9
US Corporate Profits at all-time high
(USD Billions)
2000.0
1800.0
1600.0
1400.0
1200.0
1000.0
800.0
600.0
400.0
200.0
0.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
10
2014
US spare capacity close to peak
(Utilization of existing industrial capacity, %)
85.0
80.0
75.0
70.0
65.0
60.0
1999
2000
2001
2002
2003
2004
Sources: US Federal Reserve Board, Haver Analytics
2005
2006
2007
2008
2009
2010
2011
2012
2013
11
0
Portugal
14
Spain
10
Sources: Financial Times, Haver Analytics
12
02-Sep-2014
16
09-Jun-2014
12
14-Mar-2014
18
18-Dec-2013
25-Sep-2013
03-Jul-2013
10-Apr-2013
15-Jan-2013
19-Oct-2012
27-Jul-2012
04-May-2012
09-Feb-2012
16-Nov-2011
24-Aug-2011
01-Jun-2011
08-Mar-2011
14-Dec-2010
21-Sep-2010
29-Jun-2010
30-Mar-2010
04-Jan-2010
Euro Crisis Over?
(10-yr sovereign bond yields, %)
Ireland
Italy
France
Germany
8
6
4
2
Growth rising slowly
(Euro Area Real GDP %)
4.0
3.0
2.0
1.0
(1.0)
(2.0)
(3.0)
(4.0)
(5.0)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(f)
(f)
Source: BEA, Haver Analytics
13
BRIC Economies: Slowing?
(Real GDP Growth, %)
12.0
China
10.0
India
Brazil
Russia
8.0
6.0
4.0
2.0
-
2010
2011
2012
2013
2014
2015
(2.0)
Sources: IMF, Haver Analytics
14
Breaking BRICs?

Brazil – Economy Overheating, No capacity

Russia – Mass Exodus of foreign investment,
Deep recession

India – Structural reforms needed; business
investment Infrastructure and skills shortages

China – Still growing , but vulnerabilities in the
Housing and Financial system
15
Global Oil Demand and Supply
(Thousands of barrels per day)
100000
Supply
90000
Demand
80000
70000
60000
50000
40000
2000
2001
2002
Source: International Energy Agency
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(E)
2015
(F)
16
Global Oil Demand
(Millions of barrels/day)
60.0
50.0
OECD Countries
40.0
Developing Countries
30.0
20.0
10.0
0.0
2000
2001
Source: International Energy Agency
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 (E) 2015 (F)
17
Vehicle Sales in China
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
Source: Ward’s Autos
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
-
18
Developing Country Demand Growth is
Volatile!
(annual percent change)
18%
16%
China
14%
All Developing Countries
12%
10%
8%
6%
4%
2%
0%
2001
2002
Source: International Energy Agency
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 2014 (E) 2015 (F)
19
Long-term Growth Rates
(Forecast GDP Growth 2015-2019)
8.0
7.4
7.0
6.1
6.0
4.8
5.0
3.9
4.0
2.9
3.0
2.3
2.6
2.0
1.4
1.0
0.9
0.0
Japan
Euro Area
Source: IMF, Canadian Chamber of Commerce
Canada
United States
Emerging Europe Latin America & Africa & Middle
the Carribean
East
Emerging Asia
20
How to Close the Gap??
(Thousands of barrels per day)
100000
95000
94800
93300
Supply
Demand
90000
85000
80000
75000
70000
65000
60000
55000
50000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(E)
2015
(F)
21
A 1.5 Mb/d or 1.6% gap

Supply-side

Medium- and long-term output will be affected more than short-term supplies.

US shale drillers idling rigs but US Production averaged 9.13 million at end-Dec, forecast at 9.5
million this year


Projects that have already been funded will for the most part go on

Only Russia will see outright declines in 2015
Demand

US GDP accelerating

US Car sales are stellar,
up 13% YOY

Emerging markets growth
rising from 4.4% to 4.9%

Effects of a 50% price drop
will be large, but lagged

Long-term driver of oil
demand is emerging
market middle class
22
Canadian Total Exports
Growth is concentrated in one market...
14.0%
Total Export Growth
12%
12.0%
10.0%
8.0%
6.0%
3.8%
4.0%
2.0%
1.8%
0.0%
2012
2013
Source: Statistics Canada, Haver Analytics
2014
USA
European Union
China
Japan
Mexico
Hong Kong
Korea, South
India
Brazil
Indonesia
Russia
Other countries
Total All Countries
% Change
2014/2013
12.8
1.6
-4.3
-1.3
-6.5
21.4
28.6
-4.7
-7.1
-10.8
15.9
6.4
10.2 23
Where is Canadian Growth Coming From?
(Q2-2014)
Sources: Statistics Canada
24
Where is Canadian Growth Coming From?
(Q4-2014)
Sources: Statistics Canada
25
Drivers of the Dollar
Oil prices
Metal and Ag Commodity prices
Canada/US Interest Rate Gap
Canadian
dollar
US dollar movement
The Canadian ‘halo’ effect
Source: EDC Economics
26
Foreigners Exiting Canadian Bonds
Federal bonds

Foreign divestment of $25 billion in federal government bonds in the last 5 quarters
•
Foreign investment of $46b in corporate bonds and $45b in Canadian equities during the period
27
Canadian dollar outlook
(USD per CAD)
1.05
1.01
1.00
1.00
0.97
0.95
0.93
0.97
0.94
0.92
0.90
0.88
0.88
0.85
0.83
0.80
0.80
0.75
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
28
Economies Gaining Strength
4
Canada
Euro area
United States
3.5
3
2.5
2
1.5
1
0.5
0
-0.5
-1
2011
Source: WSJ, Haver Analytics
2012
2013
2014
2015
2016
29
Key Messages

Global growth is recovering!


Oil headed back to $60-70 range


Consumer spending to slow, but exports picking up
But will take time
Big changes in the Canadian economy

Labour/Skills shortages remain/will worsen

Infrastructure, particularly for trade, pipelines to EMs

Border issues, regulations

Access to capital for fast-growing companies

Manufacturing Innovation
30
Canadian Chamber of Commerce
Policy Priorities
Gearing up for Election 2015!!
Election Year – Challenges and
Opportunities

Challenges


Everything goes through an election lens

Controversial issues become much more difficult

TFW, taxes,
Populism rules! Business-bashing scores points



Canada-US price gap
Government Hypersensitivity to criticism

Recommendations become criticism

Support for trade, FIPA
No money in the budget thanks to falling oil prices

Strong preference for gimmicks above costly across-the-board
measures
32
Election Year – Challenges and Opportunities

Opportunities – Promises and platforms


Economy is the #1 issue

Harper’s strength

Opposition parties need to prove they are business-friendly
Need for announceables


Endorsements, support, favourable news coverage


Every day, every week, something new
Chamber network is a huge advantage
This is the best time to influence government
33
Communications

It’s not about business, it’s about jobs and
prosperity for Canadians

Key Theme of Competitiveness

“A Canada that wins” or “Making Canada #1”
34
5 Things that every successful
business needs
• People
• Capital
• Technology and Innovation
• Access to markets
• Efficient Regulatory environment
Any Questions?
Hendrik Brakel
Senior Director, Economic, Financial and Tax Policy | Directeur principal, Politiques économiques, financières et fiscales
The Canadian Chamber of Commerce | La Chambre de commerce du Canada
420 – 360 rue Albert Street | Ottawa, ON K1R 7X7
Tel.: 613.238.4000 (284) | Fax: 613.238.7643
Chamber.ca |@WorkTwitterAccount | @CdnChamberofCom | facebook.com/CanadianChamberofCommerce
QE: Quadrupling the Monetary base
($US, billions, 2003-2013)
4500.0
4000.0
Monetary Base
3500.0
Total Bank Reserve
Balances
3000.0
2500.0
2000.0
1500.0
1000.0
500.0
0.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Excess liquidity: distortions?
Cash injection
Cash hoarding
Cash already in
the system
Source: EDC Economics