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strategictransportation
& tourismsolutions
The Recession: How Deep, How Long?
Prepared for
Helicopter Association of CanadaConference and Trade Show
Prepared byInterVISTAS Consulting
31 March 2009
Kahlil PhilanderSenior Analyst
InterVISTAS Consulting Inc.
1
Introduction
U.S./World OutlookCanadian OutlookRecovery IndicatorsEmerging Economic Issues
strategictransportation
& tourismsolutions
U.S./World Outlook
3
Importance of International Markets to Canada
“Stabilization of the global financial system is a precondition for economic recovery globally and in Canada.”Mark CarneyGovernor of the Bank of Canada
4
Global Outlook has become Gloomier
2007 2008 (e) 2009 (f)
Forecast % Change
since Nov ‘08
Canada 2.7% 0.6% -1.2% (-1.5)
United States 2.0% 1.1% -1.6% (-0.9)
United Kingdom 3.0% 0.7% -2.8% (-1.5)
Euro area 2.6% 1.0% -2.0% (-1.5)
China 13.0% 9.0% 6.7% (-1.8)
India 9.3% 7.3% 5.1% (-1.2)Emerging and developing economies 8.3% 6.3% 3.3% (-1.8)
Source: IMF World Economic Outlook Update (January 2009)
IMF Economic Outlook – Real GDP Forecast
5
US Real GDP Growth
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%20
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Rec
essi
on
Rec
essi
on
Historical Forecast
Recessions as defined by the National Bureau of Economic Research
Sources: Historical – Bureau of Economic Analysis, Update of Congressional Budget Office’s Budget and Economic Outlook (March 2009)
Rec
essi
on
Congressional Budget Office
6
Uncertainty in U.S. GDP Forecasts
Update of Congressional Budget Office’s Budget and Economic Outlook (March 2009)
Historical Forecast
7
Comparing recessions
There have been six recessions in the last 40 yearsThe current recession is tracking below the lowest
Source: Federal Reserve Bank of St. Louis (March 2009)
8
Fed acted quickly, but traditional options are exhausted
Sources: Board of Governors of the U.S. Federal Reserve, Bank of Canada
0
1
2
3
4
5
6
7
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Pol
icy
Rat
e (P
erce
ntag
e)
US Intended Federal Funds Rate
Bank of Canada Target for the Overnight Rate
9
Traditional Monetary Policy and the Zero Lower Bound
Sources: Board of Governors of the U.S. Federal Reserve, National Bureau of Economic Research
0
2
4
6
8
10
12
14
16
18
2019
5419
5619
5819
6019
6219
6419
6619
6819
7019
7219
7419
7619
7819
8019
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
08
Effe
ctiv
e Fe
dera
l Fun
ds R
ate
(Per
cent
)
Recession IndicatorFedRate
10
Policy Options at the Zero Lower Bound
Fiscal PolicyDeficit spendingTypically infrastructure related – “public goods”
Quantitative Easing“Modern Money Printing”Providing additional liquidityUnconventional easing has so far shown to be difficult
11
Fed has been Expanding Money Supply
M2 (Currency, checking, and savings deposits) expanded at an annual rate over 30% in December
Sources: Federal Reserve Economic Data, M2 Money Stock, Compounded Annual Rate of Change
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2003
2004
2005
2006
2007
2008
strategictransportation
& tourismsolutions
Canadian Outlook
13
Canada Real GDP Growth
-2%
-1%
0%
1%
2%
3%
4%
5%
6%20
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Historical Forecast
Rec
essi
on
Rec
essi
on
Sources: Historical – Statistics Canada, Bank of Canada Monetary Policy Report (January 2009)
Bank of Canada
14
BoC has made considerable revisions to its forecasts
Sources: Bank of Canada Monetary Policy Reports
-6%
-4%
-2%
0%
2%
4%
6%20
08-1
2008
-2
2008
-3
2008
-4
2009
-1
2009
-2
2009
-3
2009
-4
2010
-1
2010
-2
2010
-3
2010
-4
Rea
l GD
P G
row
th R
ate
(Q/Q
Ann
ualiz
ed) January-09
October-08April-08January-08
15
Commercial banks have different outlooks in the near term
Sources: Commercial Bank Forecasts
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2008
-1
2008
-2
2008
-3
2008
-4
2009
-1
2009
-2
2009
-3
2009
-4
2010
-1
2010
-2
2010
-3
2010
-4
Rea
l GD
P G
row
th (A
nnua
lized
Q/Q
Per
cent
age)
Statcan (Actual)BMO - March 20, 2009CIBC - March 2, 2009RBC - March 12, 2009Scotia - March 5, 2009TD - March 12, 2009
ForecastHistorical
16
Provincial Outlook – Real GDP Growth
2008: 1.4%
2009F:-2.4%
2008:1.2%
2009F:-2.7%
2008:-0.2%
2009F:-2.9%
2008:2.1%
2009F:-1.3%
2008:2.8%
2009F:0.5%
2008:0.4%
2009F:-1.6%
2008:1.0%
2009F:-1.2%
2008:1.2%
2009F:-2.0%
2008:1.3%
2009F:-2.5%
2008:0.8%
2009F:-1.0%
Canada Overall2008:0.5%
2009:-2.4%
Source: Provincial Economic Outlook - BMO Capital Markets Economics (20 March 2009)
17
Balance of trade has shifted to trade deficit
Source: Statistics Canada
05
101520253035404550
Jan-
00Ju
l-00
Jan-
01Ju
l-01
Jan-
02Ju
l-02
Jan-
03Ju
l-03
Jan-
04Ju
l-04
Jan-
05Ju
l-05
Jan-
06Ju
l-06
Jan-
07Ju
l-07
Jan-
08Ju
l-08
Jan-
09
Trad
e Vo
lum
es (B
illio
ns o
f Dol
lars
)
Imports Exports
18
Sharp Drop in Commodity Prices
Source: Statistics Canada
50
100
150
200
250
300
35020
00-0
120
00-0
720
01-0
120
01-0
720
02-0
120
02-0
720
03-0
120
03-0
720
04-0
120
04-0
720
05-0
120
05-0
720
06-0
120
06-0
720
07-0
120
07-0
720
08-0
120
08-0
720
09-0
1
Com
mod
ity P
rice
Inde
x
19
Commodity Prices affecting the exchange rate
Source: Statistics Canada, The Pacific Exchange Rate Service
50
100
150
200
250
300
35020
00-0
120
00-0
720
01-0
120
01-0
720
02-0
120
02-0
720
03-0
120
03-0
720
04-0
120
04-0
720
05-0
120
05-0
720
06-0
120
06-0
720
07-0
120
07-0
720
08-0
120
08-0
720
09-0
1
Com
mod
ity P
rice
Inde
x
$0.60
$0.70
$0.80
$0.90
$1.00
$1.10
US
D/C
AD
BoC Commodity Index
CAD/USD ExchangeRate
Correlation since 2000: 0.94
20
Exchange Rate
Sources: Commercial Bank Forecasts
$1.00
$1.05
$1.10
$1.15
$1.20
$1.25
$1.30
$1.35
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2009 2009 2009 2010 2010 2010 2010
CAD
/USD
BMOCIBCRBCScotiaTDAverage
21
Canada’s Economic Action Plan
Canada’s Economic Action Plan will provide almost $18 billion in this year’s budget
1.5% of GDPInvestment includes expenditures on infrastructure, housing construction, business tax relief, and labour
Additional loans to the auto sector and municipalities for housing-related infrastructure
Total 2009-2010 stimulus with leverage equals 1.9% of GDP
Total package is expected to create or maintain 190,000 jobs
strategictransportation
& tourismsolutions
Recovery Indicators
23
Bellone Index
An average lead of 9 months in predicting the post-war US recessionsThe model has produced only one false signal in 1966-1967
Credit crunch, that some economists consider close to a recession
In February 2009, the leading probability of a recession was down from 8% to 5%.
Preliminary estimates indicate that the coincident probability of a recession in January was unchanged at 100%
24
Leading probability recession indicator
25
Canadian housing starts are expected to slow down
Source: Canadian Mortgage and Housing Corporation
0
50,000
100,000
150,000
200,000
250,000
200
4
200
5
200
6
200
7
200
8
200
9(F)
201
0(F)
Total Housing Starts
Forecast
26
Residential resale prices to continue to fall
Source: Canadian Mortgage and Housing Corporation
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2004 2005 2006 2007 2008 2009(F) 2010(F)
Average Residential Resale Price Change
Forecast
27
Consumer Confidence
Consumer Confidence:Canada: Harris-Decima Index of Consumer Confidence rose to 67.0 in March
Fell from August 2008 to a low in December 2008
United States: The Reuters/University of Michigan Surveys of Consumers' preliminary March consumer sentiment index near 28-year low
Increased slightly in March to 56.6 from February's value of 56.3
28
Oil price futures in contango, but stabilizing
Source: Nymex
$-
$20
$40
$60
$80
$100
$120
$140
$160
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
US
$ pe
r Bar
rel
May 2008
March 2009 (Current)
Dec 2008
Sep 2008Mar 2008
Crude Oil Spot Prices
Crude Oil Future Prices
29
Stock market has rallied but may be a correction in a larger bear market
30
Rally has brought market well above its 20-day moving average
strategictransportation
& tourismsolutions
Emerging Economic Issues: Greenhouse Gas Policy
32
Regulation is Coming
The EU plans is adding aviation to its Emissions Trading Scheme (ETS) starting in 2012Australia is in the process of defining a cap-and-trade system which is likely to include aviationBritish Columbia has introduced North America’s first true carbon taxCap & trade legislation inevitable regionally if not nationally
33
New Energy for America Plan
Create five million new jobs $150 billion over the next ten years Within 10 years save more oil than currently imported from the Middle East and Venezuela combined
Put 1 million Plug-In Hybrid cars on the road by 2015 Ensure 10 percent of electricity comes from renewable sources by 2012, and 25 percent by 2025.Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.
34
Canada likely to Follow Suit
Canada and the United States have similar targets for reducing greenhouse gas emissions
Would likely establish separate but similar cap-and-trade systems
“One of the challenges that we faced in the past was we had an American administration that was not taking any action on climate change, and in that context anything you did as a Canadian government was imposing a competitive burden on Canadian industry and Canadian jobs." – Environment Minister Jim PrenticeSome talk of establishing softer "intensity-based" caps instead of "hard" caps on carbon emissions
strategictransportation
& tourismsolutions
Closing Commentswww.intervistas.com