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New Year, New Promise. Aron Gampel Vice-President & Deputy Chief Economist Scotiabank Economics. March 5, 2013. Canada’s Growth Performance At High End Of G7 Trends. Cumulative Output Rise From 2009 Trough. Cumulative Output Rise From Prior Peak. Euro zone (ex. Germany). - PowerPoint PPT Presentation
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New Year, New Promise
Aron GampelVice-President & Deputy Chief EconomistScotiabank Economics March 5, 2013
Source: DataInsight, Scotiabank Economics.
Canada’s Growth Performance At High End Of G7 Trends
0.6
7.5
8.8
9.2
0.0 2.0 4.0 6.0 8.0 10.0
U.S.
Germany
Canada
Cumulative Output Rise From 2009 Trough
% change
-4.7
1.4
2.5
4.4
-5.0 -2.5 0.0 2.5 5.0
Germany
U.S.
Canada
Cumulative Output Rise From Prior Peak
% change
Euro zone (ex.
Germany)
Euro zone (ex.
Germany)
Canada’s Performance Underpinned By A Diversified Economy
60
70
80
90
100
110
120
130
04 06 08 10 12 14
Canada’s Primary Sector Output
index, 2004=100
Oil, Gas & Coal (3%)
Agriculture & Fishing (2%)
Mining (1%)
Forestry & Lumber (2%)
80
90
100
110
120
130
04 06 08 10 12 14
Canadian Output
index, 2004=100
Manufacturing (9%)
Primary (11%)
Total
Construction (6%)
Services (72%)
forecast forecast
Bracketed numbers represent share of total output.Source: Statistics Canada, Scotiabank Economics.
Utilities (3%)
Source: Statistics Canada, Scotiabank Economics.
100
110
120
130
140
150
160
170
180
190
200
04 06 08 10 12e 14f
Nominal GDP Per Capitaindex: 2004=100
100
110
120
130
140
150
160
170
180
190
200
04 06 08 10 12e 14f
Nominal GDP Per Capitaindex: 2004=100
OntarioB.C.
Alberta
Quebec
Saskatchewan
P.E.I.
New Brunswick
Nova Scotia
Newfoundland and Labrador
forecastforecast
Manitoba
Growth And Income Prospects Best In Canada’s Resource Regions
-2
0
2
4
6
8
10
12
China India Brazil Mexico U.S. Canada Germany Euro zone
2012f2013f2014f
annual % change
Source: Bloomberg, U.S. BEA, Statistics Canada, Eurostat, Scotiabank Economics.
Real GDP
2004-07
Rebuilding Momentum, But Slowly
25
50
75
100
125
04 06 08 10 12 14
U.S.
Canada
Housing Starts
forecast
25
50
75
100
125
04 06 08 10 12 14
Motor Vehicle Sales
U.S.
Canadaforecast
U.S. Begins To Play Catch-Up In Big-Ticket Purchases
Source: Scotiabank Economics, CMHC, U.S. Census Bureau, Ward’s Automotive.
index: 2004=100 index: 2004=100
250
300
350
400
450
500
550
600
04 06 08 10 12
Existing Home Sales
Canadian Housing Activity Adjusting Lower For Longer
000s of units, annualized
Source: CREA, Scotiabank Economics.
10-year average
150
200
250
300
350
400
04 06 08 10 12
Existing Home Prices
$000s, national average
10-year average
Source: Statistics Canada, U.S. BEA, Scotiabank Economics.
-4
-2
0
2
4
6
08 09 10 11 12f 13f 14f
Real Government Spending – Canada
annual % change
-4
-2
0
2
4
6
08 09 10 11 12f 13f 14f
Real Government Spending – U.S.
annual % change
0%
From Fiscal Stimulus To Fiscal Drag
Source: Statistics Canada, Bloomberg, Scotiabank Economics.
-150
-100
-50
0
50
100
150
200
04 06 08 10 12
Commodities
Canadian Merchandise Trade Balances
C$ billions, s.a.
Merchandise Trade ex. Commodities
Merchandise Trade
Faster Imports, Slower Exports Erode Canada’s Trade Performance
Canadian Dollar And Oil Prices
0
25
50
75
100
125
02 04 06 08 10 12 140.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10CADUSD
Parity
Canadian Dollar(RHS)
forecast
WTI Oil(LHS)
WTI Oil US$/bbl
$100/bbl
Canada’s Large Current Account Deficit Will Be Slow To Unwind
¹ Includes industrial M&E, motor vehicles & parts, aircraft and other transportation equipment, ² industrial materials, special transactions, and other items. Source: Statistics Canada, Scotiabank Economics.
-75
-50
-25
0
25
50
75
82 85 88 91 94 97 00 03 06 09 12
Canada's Current Account Balance
$bns
Investment Income
Goods
Services
Current AccountBalance
-150
-100
-50
0
50
100
150
82 85 88 91 94 97 00 03 06 09 12
EnergyFarm & FishingConsumer goodsMetals & MineralForestryM&E, Electronics, & Autos¹other²
Canada's Goods Trade Balance
$bns
Goods Trade Balance
0
1
2
3
4
5
6
04 06 08 10 12
Mortgage Delinquencies
U.S.
Canada
% of total loans past due by three or more months
Source: CBA, MBA, CMHC, U.S. Census Bureau, Scotiabank Economics.
Less Financial Strains In Canada, But Risks Persist
-12
-10
-8
-6
-4
-2
0
2
FY95 97 99 01 03 05 07 09 11 13f
budget balances % of GDPFiscal year-ends: U.S. federal – Sept. 30, Canada – March 31.
U.S. Federal ex. Social
Security
Government Budget Imbalances
Source: U.S. BEA, Statistics Canada, Budget documents; Nominal GDP and federal forecasts: Scotiabank Economics.
forecast
Aggregate Provincial
Canada Federal
Global Industrial Activity Reviving, But Slowly
Global Orders And Production
48
50
52
54
56
58
60
10 11 12 13-2
0
2
4
6
8
10
12
14
Global New Orders (LHS)
Global Industrial Production (RHS)
6 month annualized % change
index
Record Aircraft Backlog
Source: Bloomberg, J.P. Morgan, CPB Netherlands Bureau for Economic Policy Analysis, Scotiabank Economics.
0
2
4
6
8
10
05 07 09 11 130
2
4
6
8
10
Thousands of Units
Years
backlog
Aircraft Deliveries % Share
Asia 34Europe 25North America 21Latin America 8Middle East 7Other 5
Profits And Large Cash Holdings to Underpin Investment Spending
Growth In Corporate Profits …
-40
-30
-20
-10
0
10
20
30
40
00 02 04 06 08 10 12 14
y/y % change
United States
Canada
Source: U.S. BEA, Statistics Canada, Scotiabank Economics.
… and Business Fixed Investment
90
100
110
120
130
140
-4 -2 0 2 4 6 8 10 12 14
U.S. Historical Avg.U.S. Current Cyclical Cdn Historical Avg.Cdn Current Cyclical
index, quarterly, zero=recession trough
forecast
80
90
100
110
120
130
140
150
160
170
180
04 06 08 10 12 140
3
6
9
12
15
18
04 06 08 10 12
forecast
Canada
U.S.
Non-Residential Construction
index: 2004Q1=100 %
Canada
U.S.
Office Vacancy Rates
Source: Statistics Canada, U.S. BEA, Cushman & Wakefield, CBRE, Scotiabank Economics.
Vancouver
Calgary
Non-Residential Construction Much Stronger In Canada
Toronto
0
1
2
3
4
5
6
04 06 08 10 12 14
,
0
1
2
3
4
5
6
04 06 08 10 12 14
Source: Bank of Canada, U.S. Federal Reserve, European Central Bank, Scotiabank Economics.
Central Bank Rates
U.S.forecast
%
Canada
Euro zone
Yield Curve – Flatter Now, Steeper Later
U.S.
yield
Canada
Germany
forecast
Source: Bloomberg, Scotiabank Economics.
10-year Bond Yields
0
1
2
3
4
5
6
04 06 08 10 12 14
Source: Bank of Canada, U.S. Federal Reserve, European Central Bank, Scotiabank Economics.
Central Bank Rates
U.S.forecast
%
Canada
Euro zone
Less Inflation Risk Now, More Later
-1
0
1
2
3
4
5
04 06 08 10 12 14
U.S.
Average annual % change
Canada
Euro zone
Source: Statistics Canada, U.S. BLS, Bloomberg, Scotiabank Economics.
Consumer Price Inflation
forecast
* index 2005Q3=100, Q3/Q3, NSA. Source: Statistics Canada, U.S. BLS, Eurostats, Bloomberg, Scotiabank Economics.
98
100
102
104
106
108
110
04 06 08 10 12
Employment
index, 2004 Q1=100
0
2
4
6
8
10
12
14
Germany Canada U.K. U.S. Euro zone
Unemployment Rate
%
U.S.
Canada
Germany
Euro zone (ex. Germany)*U.K.
Canada – Solid Fundamentals, Better Long-Term Growth Prospects
(ex. Germany)
Source: Statistics Canada, IMF, Scotiabank Economics.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Germany U.K. Euro zone U.S. Canada
Population Growthpopulation growth rate, 2000-2011
0%
Canada – Solid Fundamentals, Better Long-Term Growth Prospects
020406080
100120140
00 01 02 03 04 05 06 07 08 09 10 11
Western Canada Quebec
Net Immigration000s
-25
0
25
50
00 01 02 03 04 05 06 07 08 09 10 11
Net Interprovincial Migration
000s
Atlantic
Ontario
Western Canada
Quebec
Atlantic
Ontario(ex. Germany)
-10
-5
0
5
10
15Ca
nada
Aust
ralia
U.K.
U.S.
Switz
erla
nd
Ger
man
y
Japa
n
5-year 10-year
Source: Bloomberg, Scotiabank Economics.
Bank Share Price Performance
% change
• Canada’s banking system ranked the world’s soundest for the 5th consecutive year -- World Economic Forum’s Global Competitiveness Report, 2008-11.
• Canadian financial institutions make up 7 of the world’s 50 safest banks -- Global Finance’s World’s 50 Safest Banks, 2012.
• Canada is one of 11 countries (in addition to Australia, Denmark, Norway, Singapore, Sweden and Switzerland) whose sovereign debt is ‘AAA’ rated with a stable outlook, and one of 13 ‘AAA’ countries which includes The Netherlands with either stable or negative outlooks.
• Scotiabank named 2012 Bank of the Year by FT’s The Banker.
Canada – Solid Fundamentals, Better Long-Term Growth Prospects
0
5
10
15
20
25
30
35
40
45 2012, %
National Average assumes 10% Prov. CIT rate and cross-Canada HST
Marginal Effective Tax Rates on Capital
Source: Finance Canada, Finance Ontario, Scotiabank Economics.
0
5
10
15
20
25
30
35
40
45
Corporate Income Tax Rates*
Japan
France
U.S.
Germany
CanadaItaly
U.K.
* Central plus sub-central rates. Source: OECD, Scotiabank Economics.
2012, %
Canada
Small Developed Countries
OECD
U.S.
Canada – Solid Fundamentals, Better Long-Term Growth Prospects
Source: Statistics Canada, Scotiabank Economics.
300
400
500
600
700
800
900
1000
00 02 04 06 08 10
International Investment In Canada
C$ billions
Commodities Dominate Exports
Portfolio Inflows
Foreign Direct Investment
Canada – Solid Fundamentals, Better Long-Term Growth Prospects
% share of total export receipts, 2012.
Commodities 55%
All Other Goods35%
Vehicles & Parts 14%
Energy24%
Mining14%
Forest Products 5%
Agri-Food 7%
* Excluding Mexico. Source: WTO, IMF, Strategis, Scotiabank Economics.
0
20
40
60
80
U.S. Asia WesternEurope
Other LatinAmerica*
Canadian Exports% share of total exports, 2012
Canada Must Focus More On Global Markets For Long-Term Growth …
0
10
20
30
40
50
U.S. Japan Canada U.K. Germany
World Exports% of GDP, 2011
-2 0 2 4 6 8 10
Germany
Canada
U.S.
2000-2011 % change, compound annual
growth
Source: U.S. BLS, Scotiabank Economics.
… But Competitive Challenges Persist …
Wages
Wages
Wages
Productivity
Productivity
Productivity
Unit Labour Costs (local currency)
Unit Labour Costs (local currency)
Unit Labour Costs (local currency)
Currency (against USD)
Currency (against USD)
Unit Labour Costs (USD)
Unit Labour Costs (USD)
Unit Labour Costs (USD)
0
¹ volumes, real GDP. ² volumes of goods & services. Source: IMF, Scotiabank Economics.
... Will Likely Narrow
… And Trade Prospects Internationally May Be Slightly Tempered
The 3 Percentage Point Gap ...
-12
-8
-4
0
4
8
12
16
80 85 90 95 00 05 10 15f
y/y % change
forecast
Growth¹
Trade²
Expansion Periods
Global Output Growth (%)
Global Trade (%)
Differential (percentage
points)
1983-89 3.9 5.9 2.0
1992-00 3.3 7.6 4.3
2002-07 4.5 7.5 3.0
2010-12e 4.1 7.2 3.1
2013-17f 4.0 6.5 2.5
Global Output And Trade
Emerging Market Economies – Consensus Growth Leaders
3.9
4.1
1.4
2.4
4.9
0.5
3.0
2.2
3.1
3.4
2.5
2.1
2.3
3.1
5.4
4.4
3.0
1.5
1.8
4.3
0 1 2 3 4 5 6
Eastern Europe (7%)
Latin America (8%)
Western Europe (27%)
U.S. / Canada (27%)
Asia Pacific (32%)1980s1990s2000s
1980s1990s2000s
1980s1990s2000s
1980s1990s2000s
1980s1990s2000s
Bracketed figures represent percent share of the global economy.Source: Consensus Forecasts Global Outlook, October 2012.
Real GDP, average annual % change
2010s
2010s
2010s
2010s
2010s
020406080
100120140160180
Greece Italy U.S. Canada Emerging*
Gross DebtNet Debt
Gross & Net Debt
-4
-2
0
2
4
China Japan Eurozone
Brazil U.S. Canada India
Current Account Balance
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
China Japan Brazil India Eurozone
Canada U.S.
Foreign Reserves
0
10
20
30
40
50
60
China India Japan Canada Eurozone
Brazil U.S.
Gross National Savings2012, % of GDP
General Gov’t, 2012, % of GDP
2012 Q4, US$ trillions
2012, % of GDP
Emerging Market Economies Have More Financial Flexibility
* Emerging and Developing markets. Source: IMF, Bloomberg, Scotiabank Economics.
Euro zone
Germany
Per Capita GDP*
Motor vehicles per 1000 people
Number of Airports
Health Care Expenditure
% of GDP
Services Share % of
GDP
India 1,514 20 352 2 65
China 5,417 70 497 5 44
Brazil 12,789 174 4,105 9 67
Canada 50,496 621 1,453 11 70
United States 48,328 793 15,079 16 80
*Market exchange rate, USD.Source: IMF WEO October 2012 (estimates), Ward’s Automotive Reports, CIA World Factbook.
Emerging Market Economies’ Have Stronger Growth Dynamics
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate.
Demographics Will Continue To Drive Emerging Market Economies …
0.0
0.3
0.6
0.9
1.2
1.5
Rest ofAsia
China India
Populationbillions, 2010*
Euro area
Japan
Brazil
Mexico
Russia
U.S.Restof Asia
(ex. Japan)
Indonesia
Vietnam
KoreaThailand
Canada
Demographic Trends
0200400600800
1000120014001600
2011-2030
More DevelopedRegions
Less DevelopedRegions
millions of people
Change in Urbanized Population
15-24 yrs 25-64 yrs 65+ yrsIndia 12 218 73China -63 47 136Brazil -4 21 20Mexico -1 17 10U.S. 4 8 37Canada -1 1 5Japan -2 -10 14Russia -3 -11 9Europe -9 -33 58
Change in Population 2011 – 2030 (millions)
100
125
150
175
200
225
04 05 06 07 08 09 10 11
… Spending Power …
0.0
0.3
0.6
0.9
1.2
1.5
Rest ofAsia
China India
Populationbillions, 2010*
Euro area
Japan
Brazil
Mexico
Russia
U.S.Restof Asia
(ex. Japan)
Indonesia
Vietnam
KoreaThailand
Canada
China (Urban)
U.S.Euro zone
index: 2004=100
Canada
U.K.
Growth In Personal Disposable Income
Germany
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate.
Source: Bloomberg, IMF, Statistischen Bundesamtes, Scotiabank Economics.
… And Oil Consumption …
0.0
0.3
0.6
0.9
1.2
1.5
Rest ofAsia
China India
Populationbillions, 2010*
Euro area
Japan
Brazil
Mexico
Russia
U.S.Restof Asia
(ex. Japan)
Indonesia
Vietnam
KoreaThailand
Canada
Global Oil Consumption
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate.
90
110
130
150
170
190
210
230
99 01 03 05 07 09 11 13f
Index, 1999=100
Emerging Asia
China
United States
Source: Statistics Canada, Bloomberg, Scotiabank Economics.
0
5
10
15
20
25
04 06 08 10 12 14
… Reshaping The Global Manufacturing Landscape
Auto Sales
0
5
10
15
20
25
04 06 08 10 12 14
millions of units
North America*
Europe
*Includes light trucks in North America. Source: Scotiabank Economics, Ward’s Automotive.
China
forecast
millions of units
Motor Vehicle Production
North America*
Europe
China
forecast
Source: Industry Canada, Scotiabank Economics.
Trends In Canadian Exports By Product
2012 2009-12 2008-09 2000-08Total Exports 1.6 8.2 -25.6 2.3 100.0 5.0
Oil & Gas 1.0 12.2 -38.5 13.6 25.5 UnderperformMotor Vehicles 17.0 16.8 -28.8 -6.6 13.5 UnderperformMachinery & Equipment 5.3 3.2 -17.8 0.3 7.2 OverperformPrecious Stones & Metals -13.3 20.7 -6.8 14.8 5.0 UnderperformElectronic Equipment -1.4 -2.5 -15.5 -6.8 3.3 UnderperformPlastics -0.7 5.2 -22.6 2.7 2.7 UnderperformAircrafts & Aerospace 6.2 -1.9 8.0 0.2 2.3 OverperformWood 10.3 10.4 -24.3 -9.6 2.2 OverperformMining -1.7 15.2 -14.6 14.8 1.9 OverperformAluminum -12.7 4.4 -35.6 5.8 1.9 UnderperformPaper -13.3 -7.7 -18.1 -4.2 1.9 UnderperformOil Seeds 23.2 15.3 -8.2 16.7 1.8 OverperformCereals 7.7 2.0 -19.2 10.3 1.7 OverperformFertilizers -7.6 15.5 -38.9 13.7 1.6 UnderperformIron & Steel -5.6 12.6 -43.3 13.1 1.6 Underperform
Sub-Total 2.4 9.7 -27.9 2.5 74.0
Canada's Top 15 Merchandise Exports - Product PerformanceCompound Annual Growth Rates, % % Share of 2012
Exports Outlook for 2013
Source: Industry Canada, Scotiabank Economics.
Trends In Canadian Imports By Product
2012 2009-12 2008-09 2000-08Total Imports 3.5 8.1 -15.8 2.8 100.0
Motor Vehicles 11.2 12.7 -21.9 0.3 15.3Machinery & Equipment 5.9 8.4 -16.8 -0.6 14.6Oil & Gas -3.0 14.4 -36.0 16.4 11.1Electronic Equipment 0.7 5.7 -9.6 -2.2 9.8Precious Stones & Metals -12.1 17.5 4.4 21.6 3.3Plastics 4.8 7.5 -13.8 2.8 3.3Medical Equipment 7.8 6.2 -3.5 -1.1 2.9Pharmaceutical Products -0.8 -2.4 15.9 12.0 2.7Articles of Iron & Steel 11.2 13.5 -22.9 6.2 2.6Furniture 10.9 8.3 -14.5 5.3 1.9Iron & Steel 0.0 16.0 -41.5 6.5 1.8Rubber 4.3 10.6 -4.9 1.3 1.6Organic Chemicals -0.7 -1.1 -18.4 6.4 1.3Aircrafts & Aerospace -1.6 -3.0 -17.0 2.0 1.2Paper -6.5 -3.1 -4.6 0.4 1.2
Sub-Total 3.3 9.1 -18.2 2.7 74.8
Compound Annual Growth Rates, % % Share of 2012 Imports
Canada's Top 15 Merchandise Imports - Product Performance
Source: Scotiabank Economics, Bloomberg.Forecasts at February 28, 2013
Economic & Market Outlook
12f 13f 14f 12f 13f 14f
REAL GDP, annual average CURRENCY, end of period
U.S. 2.2 2.0 2.7 Canadian Dollar (CADUSD) 1.01 0.99 1.01
Canada 1.9 1.6 2.4 Brazilian Real (USDBRL) 2.05 2.00 1.96
U.K. 0.2 0.9 1.4 Euro (EURUSD) 1.32 1.27 1.25
Euro zone -0.5 -0.3 1.0 Mexican Peso (USDMXN) 12.85 12.93 13.14
Brazil 1.0 3.3 4.0 Chinese Renminbi (USDCNY) 6.23 6.10 6.04
Mexico 4.0 3.6 3.9
China 7.8 8.1 8.3 3-MONTH T-BILLS, end of period
India 5.1 6.0 6.5 Canada 0.93 1.00 1.10
U.S. 0.04 0.10 0.10INFLATION, end of period
U.S. 1.9 2.0 2.0 10-YEAR BONDS, end of period
Canada 0.9 1.7 2.0 Canada 1.80 2.25 3.35
U.K. 2.7 2.9 2.4 U.S. 1.76 2.25 3.50
Euro zone 2.2 1.7 1.7
Brazil 5.8 5.8 5.5 COMMODITIES, annual average
Mexico 3.6 3.8 3.8 WTI Oil (US$/bbl) 94 94 96
China 2.5 3.3 3.9 NYMEX Natural Gas (US$/mmbtu) 2.83 3.75 4.00
India 7.2 7.0 6.1 Gold, London PM Fix (US$/oz) 1,670 1,690 1,650
Disclaimer
• TM Trademark of The Bank of Nova Scotia. Used under license, where applicable.
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.