Download 2017: A turning point?

ECONOMIC STUDIES | DECEMBER 16, 2016
ECONOMIC & FINANCIAL OUTLOOK
2017: A turning point?
HIGHLIGHTS
ff Major uncertainties persisted throughout 2016 and numerous
disruptive events occurred this year, such as the Brexit victory
in the United Kingdom, and Donald Trump’s election as
U.S. president. This year should therefore wind up with fairly
subdued economic growth in most parts of the world.
ff The coming year will also have its share of uncertainty,
from elections in several European countries, the process
for the U.K.’s withdrawal from the European Union, and
the implementation of Donald Trump’s election platform.
However, economic conditions should improve over the
course of the year, particularly in the United States and
Canada, and in most of the provinces.
ff In the United States, Donald Trump’s win does not seem to
have hampered the upswing in U.S. confidence. The policies
the new administration will apparently implement should
trigger faster economic growth in 2017, although the increase
in interest rates and the greenback’s appreciation should limit
the rebound. After that, the introduction of policies that are
not as good for the economy, such as stronger protectionism,
could curb real GDP growth in 2018.
ff In Canada, the energy sector’s stabilization and benefits of
the federal government’s stimulus program should pave the
way for slightly stronger economic growth in 2017 and 2018.
A number of headwinds will continue to hamper Canada’s
economy, such as the housing market slowdown expected in
several regions, and uncertainties over NAFTA’s future.
CONTENTS
Highlights........................................................... 1
Risks inherent in our scenarios............................ 2
Financial forecasts.............................................. 3
ff In Quebec, economic conditions have improved recently,
with more positive results, particularly for the labour market.
We have therefore increased our projection for 2016 from
1.3% to 1.5%. Caution is in order, however, and Quebec’s
economy still faces a number of obstacles, such as lacklustre
growth in business investment. Growth is thus not expected
to beat 2016’s by very much in the next few years.
ff In the other provinces, the regional disparities seen in recent
years could wane in 2017 and 2018. For one thing, Alberta,
Saskatchewan and Newfoundland and Labrador will benefit
from the energy sector’s stabilization. For another, the growth
champions of recent years, Ontario and British Columbia,
could be especially hard hit by the housing market’s forecast
slowdown.
ff The Federal Reserve (Fed) should keep bringing its key interest
rates up slowly in the quarters to come, which will open the
door for an ongoing bond yield uptrend. In contrast, the other
central banks will want to maintain highly accommodative
monetary policies. The loonie has been particularly robust
since the U.S. election. It has gotten a hand from the rise in
oil prices, but also from the fact that investors seem to be
starting to think that the Bank of Canada could follow the
Fed by raising its key rates next year. In our opinion, such
expectations are premature and we continue to look for a
Canadian key rate status quo until the fall of 2018, with the
Canadian dollar trending down.
Economic forecasts
Overseas................ 4
United States.............. 6
Canada.................. 8Quebec.....................10
Ontario and other provinces............................12
Medium-term issues and forecasts..................15
François Dupuis, Vice-President and Chief Economist • Hélène Bégin, Senior Economist • Mathieu D’Anjou, Senior Economist
Benoit P. Durocher, Senior Economist • Francis Généreux, Senior Economist • Jimmy Jean, Senior Economist • Hendrix Vachon, Senior Economist
Desjardins, Economic Studies: 514‑281‑2336 or 1 866‑866‑7000, ext. 5552336 • [email protected] • desjardins.com/economics
NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.
IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data
obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer
or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice,
notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections
expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the
official position of Desjardins Group. Copyright © 2016, Desjardins Group. All rights reserved.
ECONOMIC STUDIES
RISKS INHERENT IN OUR SCENARIOS
The weakness of emerging economies, especially China’s, is still a source of concern. A pullback in Europe’s economy, difficult
negotiations in the United Kingdom in the wake of the Brexit referendum and persistent geopolitical risks could also disrupt the global
economy, as could potential trade wars. In the United States, the uncertainty about the policies to be put forth by Donald Trump’s new
administration is a major source of risk. The forecasts could be greatly affected by how households, businesses, the financial markets
and foreign governments respond to elements such as the president-elect’s protectionism, the explosion of the federal government
debt in the United States and immigration reform. In Canada, the risks remain tilted downward and concerns have edged up a notch
due to the resurgence of U.S. protectionism. Furthermore, the future of NAFTA is uncertain. The situation in the real estate market
and the high level of household debt are also worrisome, especially with the new federal rules on residential credit and the increase
in certain mortgage rates. Bond yields have adjusted upwards following the U.S. presidential election, but they remain weak and our
scenarios only call for interest rates to rise gradually in the next few quarters. Surfacing concerns about a real surge in inflation, or a
loss of confidence in the solvency of the U.S. government could push bond yields much higher and potentially destabilize the financial
markets. The recent wave of optimism on the markets could also continue, driving up stock markets, interest rates and commodity
prices faster than anticipated. This would also be good for the Canadian dollar.
TABLE 1
World GDP growth (adjusted for PPP) and inflation rate
WEIGHT*
2016f
2017f
2018f
2016f
2017f
2018f
39.3
15.8
1.4
1.6
1.6
1.4
1.8
2.5
1.9
1.7
2.1
2.0
0.8
1.3
1.5
1.6
2.1
1.9
1.9
2.4
2.0
0.3
0.5
1.5
2.7
1.6
2.3
1.5
2.2
0.8
1.8
1.6
2.1
1.9
2.2
4.2
2.4
11.9
0.8
2.0
1.6
0.7
1.1
1.3
0.7
1.3
1.3
-0.2
0.7
0.2
0.4
2.0
1.3
0.9
2.3
1.5
3.4
2.3
1.9
1.7
1.2
0.9
1.2
1.1
0.8
1.4
1.3
1.0
0.4
0.2
-0.1
1.5
1.2
0.8
1.7
1.4
1.2
4.0
1.0
1.5
3.1
1.4
3.0
1.4
2.7
0.6
1.2
1.0
2.1
1.1
2.4
60.7
25.4
3.9
6.7
4.3
6.4
4.6
6.3
4.8
2.8
4.7
2.9
4.1
3.1
17.2
7.0
6.6
7.6
6.2
7.5
5.9
7.5
1.9
5.1
1.9
5.1
2.0
5.1
5.3
6.8
4.5
-0.9
4.4
1.6
4.6
1.9
2.1
5.3
3.1
4.3
3.4
4.0
1.9
2.8
2.1
-3.2
2.2
1.2
1.0
2.1
3.3
7.1
3.5
5.2
3.4
4.8
IN %
Advanced economies
United States
Canada
Quebec
Ontario
Japan
United Kingdom
Euro zone
Germany
France
Italy
Other countries
Australia
Emerging and developing economies
North Asia
China
India
South Asia
Latin America
Mexico
Brazil
Eastern Europe
Russia
INFLATION RATE1
REAL GDP GROWTH
7.3
1.3
2.2
2.5
5.5
5.0
4.9
3.1
-0.6
1.2
1.4
6.3
5.3
5.1
Other countries
15.9
2.3
2.6
3.9
10.6
10.8
8.3
South Africa
0.6
0.5
1.3
2.4
6.4
5.9
5.1
100.0
3.0
3.3
3.5
2.8
3.2
3.1
World
f: forecasts; PPP : Purchasing Power Parities, exchange rate that equates the costs of a broad basket of goods and services across countries; * 2015;
1
The inflation forecasts were revised to no longer account for Venezuela. Major international organizations are now doing the same.
Sources: World Bank, Consensus Forecasts and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
2
ECONOMIC STUDIES
FINANCIAL FORECASTS
The favourable reception investors gave the Donald Trump win has turned into a real wave of optimism in the last few weeks.
Encouraging economic numbers have also supported the stock market and bond yield uptrend. The commitment from the Organization
of Petroleum Exporting Countries (OPEC) to substantially cut the global oil supply as of January 2017 suggests that oil prices will stay
above US$50 a barrel for good. On December 14, the Federal Reserve (Fed) surprised no one when it announced a second 0.25% key
rate increase. U.S. monetary policy should continue to firm slowly in the coming quarters, which suggests that bond yields could keep
trending up, but more slowly. The other central banks will want to maintain highly accommodative policies; the European Central Bank
recently announced that its large-scale asset purchases would continue until the end of 2017 at least. The U.S. dollar should therefore
remain strong. To date, the Canadian dollar has been particularly robust since the U.S. election. It has gotten a hand from the rise in
oil prices, but also from the fact that investors seem to be starting to think that the Bank of Canada could follow the Fed by raising its
key rates next year. In our opinion, there is no basis for such expectations and we continue to look for a Canadian key rate status quo
until late 2018, with the Canadian dollar trending down.
TABLE 2
Summary of the financial forecasts
2016
END OF PERIOD IN % (EXCEPT IF INDICATED)
Key interest rate
United States
Canada
Euro zone
United Kingdom
Federal bonds
United States
2-year
5-year
10-year
30-year
Canada
2-year
5-year
10-year
30-year
Currency market
Canadian dollar (USD/CAD)
Canadian dollar (CAD/USD)
Euro (EUR/USD)
British pound (GBP/USD)
Yen (USD/JPY)
Stock markets1 (level and growth)
United States – S&P 500
Canada – S&P/TSX
Commodities (annual average)
WTI oil (US$/barrel)
Gold (US$/ounce)
2017
2018
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
0.50
0.50
0.00
0.25
0.75
0.50
0.00
0.25
0.75
0.50
0.00
0.25
1.00
0.50
0.00
0.25
1.00
0.50
0.00
0.25
1.25
0.50
0.00
0.25
1.25
0.50
0.00
0.25
1.50
0.50
0.00
0.25
1.75
0.50
0.00
0.25
2.00
0.75
0.05
0.25
0.76
1.15
1.61
2.33
1.25
2.05
2.55
3.15
1.20
1.95
2.50
3.10
1.40
2.05
2.55
3.20
1.45
2.15
2.65
3.25
1.60
2.30
2.80
3.35
1.60
2.30
2.75
3.30
1.90
2.55
2.95
3.40
2.15
2.85
3.25
3.55
2.30
2.90
3.25
3.55
0.52
0.62
1.00
1.66
0.80
1.20
1.80
2.40
0.70
1.10
1.70
2.35
0.75
1.20
1.75
2.40
0.80
1.30
1.85
2.45
0.85
1.40
1.95
2.55
0.85
1.40
1.90
2.50
1.10
1.65
2.10
2.55
1.25
1.90
2.35
2.65
1.40
2.00
2.40
2.70
1.31
0.76
1.12
1.30
101
1.33
0.75
1.05
1.25
118
1.35
0.74
1.05
1.21
118
1.39
0.72
1.04
1.17
120
1.39
0.72
1.03
1.15
120
1.41
0.71
1.02
1.13
122
1.41
0.71
1.01
1.12
122
1.43
0.70
1.01
1.11
123
1.41
0.71
1.00
1.10
124
1.39
0.72
1.01
1.10
125
2,250
15,200
Target: 2,400 (+6.7%)
Target: 16,100 (+5.9%)
Target: 2,450 (+2.1%)
Target: 16,750 (+4.0%)
43 (52*)
1,250 (1,160*)
55 (58*)
1,150 (1,100*)
57 (60*)
1,050 (1,000*)
f: forecasts; WTI: West Texas Intermediate; 1 End of year.
Sources: Datastream and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
3
ECONOMIC STUDIES
Overseas
Europe: Political pitfalls on the horizon
FORECASTS
Since Donald Trump was elected, the focus has mainly been on the United States. However, political events in Europe could also
have a big impact on the scenarios in 2017. For now, growth remains relatively stable in the euro zone; real GDP should rise 1.3%
in 2017 and 2018, after a 2016 gain of 1.6%. So far, the eventual Brexit has not had much impact on Britain’s economy, but real GDP
growth should still slacken next year. China’s economy seems to have stopped slowing and growth should stay around 6%. The global
economy should expand 3.3% in 2017 and 3.5% in 2018, following slower growth of 3.0% in 2016.
EURO ZONE
Euroland’s real GDP growth was relatively stable in the third
quarter, advancing 1.4% after a 1.2% gain last spring. These
two increases are nonetheless weaker than the average of 2.0%
seen in the two previous quarters. It was not the zone’s major
economies that did well in the summer of 2016, but rather
Portugal, Greece, the Netherlands and Spain, which all posted
annualized growth of around 3%. In contrast, Italy (1.0%), France
(1.0%) and Germany (0.8%) posted more disappointing results
(graph 1).
What can we expect for the end of 2016 and 2017? For now,
there is no sign of strong acceleration. At best, some of the
consumer confidence indexes have improved, but the gains
are too slight to suggest much stronger growth by consumer
spending (graph 2). The same applies for business. Some
PMI indexes have improved, but are not yet high enough to really
change the situation.
What’s more, Europe’s economy will have to deal with some
political obstacles. It could already be affected by a decline in
British demand as a result of the adjustments associated with
Brexit. Added to that are the uncertainties that could fuel the
Italian political difficulties subsequent to the recent loss in the
constitutional referendum, the Dutch election in March, the
elections for the French President (April–May) and legislature
(June), and the general election in Germany (September or
October). What remains to be seen is whether the surge in
populism that led to the outcome of the referendum in the
United Kingdom and Donald Trump’s win will persist in 2017
in these countries. If so, it could heavily undermine the
European Union. Although Euroland’s jobless rate has finally
dropped below 10%, it remains high in some of these countries,
which could fuel political shifts (graph 3 on page 5). The situation
in Germany seems less worrisome, however. In the meantime,
we are expecting the euro zone’s real GDP growth to be 1.6%
in 2016, followed by gains of just 1.3% in 2017 and 2018.
UNITED KINGDOM
Brexit developments are coming at a snail’s pace and the
goals of Theresa May’s government are still far from clear. This
situation is providing further uncertainty in the United Kingdom.
What’s more, recent comments by various British and European
politicians suggest very tough negotiations, which could result in
a “hard Brexit” that would substantially curb the movement of
people, goods and services. Formal negotiations are expected to
begin before the end of March.
GRAPH 1
GRAPH 2
The major euro zone nations posted soft real GDP growth in Q3
Euroland household confidence is up, but not yet enough to
suggest consumption will accelerate
Real GDP
Index
Quarterly annualized variation in %
3
3
-5
2
-10
2
1
-15
0
-20
1
-1
-25
-2
Sources: Eurostat and Desjardins, Economic Studies
Portugal
Greece
Netherlands
Spain
Austria
Finland
Euro zone
Italy
France
Germany
-30
Belgium
0
Annual variation in %
0
-35
2010
2011
2012
2013
Confidence (left)
2014
2015
2016
-3
Real consumption (right)
Sources: Eurostat, European Commission and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
4
ECONOMIC STUDIES
GRAPH 3
GRAPH 4
The euro zone’s jobless rate has finally dropped below 10%
In the United Kingdom, growth weakened slightly in Q3
Jobless rate
Real GDP
In %
In %
14
5
12
4
10
3
8
2
6
1
4
0
2
0
2008
2009
2010
Euro zone
2011
France
2012
2013
Germany
2014
Italy
2015
2016
-1
2010
2011
Netherlands
Sources: Eurostat and Desjardins, Economic Studies
So far, these risks are not having too much direct impact on
the strength of the U.K.’s economy. Real GDP grew 2.0% there
in the third quarter. This is lower than the 2.7% gain recorded
last spring, but does not represent a trend change (graph 4).
Net exports, stimulated by the pound’s slide, were the main
contributor to growth in the third quarter. The British currency’s
depreciation is, however, starting to be a drag on the economy
through a substantial increase in import prices and livelier rise in
producer and consumer prices (graph 5). Britain’s economy is also
expected to slow in 2017; real GDP should rise 1.1% after gaining
2.0% in 2016.
2012
2013
China’s economy has stabilized in the last few quarters; annual
real GDP growth was 6.7% for the first three quarters of 2016
(graph 6). Also note that quarterly real GDP change was stronger
last spring and summer. This reflects the fact that investment
stopped slowing after bottoming out early in the year. China’s
real GDP should rise 6.6% in 2016. However, many risks persist
in this economy, starting with debt-laden public enterprises. This
situation could bring on another slowdown; economic growth
should drop to 6.2% in 2017. The wave of protectionism that
is hitting the global economy could take growth slightly below
6.0% as of 2018.
2015
2016
Annual change
Sources: Office for National Statistics and Desjardins, Economic Studies
GRAPH 5
Prices seem to be accelerating in the United Kingdom
Price indexes
Annual variation in %
Annual variation in %
2
1
0
-1
-2
JAN.
2015
APR.
JUL.
OCT.
Consumer (left)
CHINA
2014
Quarterly annualized change
JAN.
APR.
JUL.
OCT.
2016
Producer (left)
Import (right)
10
8
6
4
2
0
-2
-4
-6
-8
Sources: Office for National Statistics and Desjardins, Economic Studies
GRAPH 6
Growth is stable in China
Real GDP
In %
11
10
9
8
7
6
5
4
2011
2012
2013
2014
Quarterly annualized change
2015
2016
Annual change
Sources: National Bureau of Statistics of China and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
5
ECONOMIC STUDIES
United States
The U.S. economy in the Donald Trump era
FORECASTS
Positive signs were already multiplying before the November 8 election. Donald Trump’s victory does not seem to have marred this
trend, on the contrary. As such, real GDP growth will remain strong in the fourth quarter of 2016. The scenarios will then be subject
to the facts and actions of the new administration. Our assumptions anticipate short-term positive impacts, primarily due to tax cuts
for households and businesses. Rising interest rates and a strong dollar will however limit the rebound. Real GDP growth of 2.5% is
expected in 2017. New policies implemented thereafter that are less conducive to the economy could rein in real GDP growth, which
should slow to 2.1% in 2018.
Real GDP in the United States grew by 3.2% in the third quarter,
according to the preliminary estimate of the national accounts—
the fastest advance since summer 2014. We can also expect the
economy to keep humming along through the last quarter of the
year. The improvement in household confidence is also worth
noting (graph 7). There was a risk that the surprising result of
the November 8 election would fuel uncertainty and undermine
household confidence. The opposite seems to have occurred
instead. Both of the main confidence indexes were up in
November and the gains appear to be extending into December,
based on the University of Michigan index. The context is ripe
for real consumption to accelerate. Businesses are not sitting on
the sidelines. The ISM indexes may have dipped by the end of
summer, but they are rising now (graph 8), which is a good sign
for business investment. For its part, drilling is also climbing in
the United States, suggesting that oil investment is starting to
recover after seven consecutive quarters of significant declines.
Donald Trump’s election clearly has sizable repercussions
on our economic scenarios. Since he only takes office on
January 20, 2017, the president-elect is busy building his cabinet.
For the moment, we have to look to his electoral program to
assess the implications of his election for the U.S. economy.
However, of all the measures proposed, we still do not know
exactly which ones will be implemented, and more importantly,
when and how. We therefore have to make assumptions, and
we will have to adjust our assumptions once Donald Trump
and Congress clarify their intentions. Among the assumptions
retained, we expect tax cuts of about US$830 on average per
household as of spring 2017. At the same time, businesses should
also be eligible for more accommodating tax and regulatory
policies on investments. Government spending should rise
in 2017, primarily for defence. Infrastructure investments, based
on a fairly complicated public-private financing arrangement,
should ramp up at a later date.
These measures should stimulate U.S. real GDP growth
temporarily through the new year, and we have adjusted our
scenario accordingly. However, some factors will limit the gains
from Donald Trump’s policies (graph 9 on page 7). First, the
interest rate increases we can already count on will negatively
impact growth, especially in the housing market. Second, the
greenback’s appreciation will stifle net exports. Third, the jump
in disposable income due to tax cuts should bump up the savings
rate sharply.
GRAPH 7
GRAPH 8
Household sentiment is improving
The ISM indexes are improving
Consumer confidence indexes
ISM indexes
Index
Index
140
110
120
100
100
90
80
80
52
60
70
50
40
60
48
20
2000
50
46
2013
2002
2004
2006
Conference Board (left)
2008
2010
2012
2014
University of Michigan (right)
Sources: Conference Board, University of Michigan and Desjardins, Economic Studies
2016
Index
60
58
56
54
2014
2015
Manufacturing
2016
Non-manufacturing
Sources: Institute for Supply Management and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
6
ECONOMIC STUDIES
GRAPH 9
GRAPH 10
Two factors could hurt U.S. growth: The dollar’s rise and higher
interest rates
The expected growth in U.S. real GDP has been revised upwards
in the short term, but downward in the longer term
Index
In %
Annual variation in %
130
4.25
3.0
Real GDP
128
4.00
126
124
3.75
122
3.50
120
118
JAN.
2016
2.5
2.0
1.5
1.0
0.5
APR.
JUL.
Effective U.S. dollar* (left)
3.25
OCT.
0.0
2016
2017
30-year mortgage rate (right)
2018
Previous forecasts
* Federal Reserve’s broad index.
Sources: Federal Reserve Board, Datastream and Desjardins, Economic Studies
2019
2020
New forecasts
Sources: Bureau of Economic Analysis and Desjardins, Economic Studies
Lastly, some of the measures put forth by Donald Trump are
clearly less favourable to the U.S. economy starting with the
protectionist measures. Our assumptions consider that some
targeted tariffs will start rising as of 2018, and this will have a
negative impact on investment and drive up inflation. In such
circumstances, real GDP growth could be weaker in 2018 (2.1%)
than in 2017 (2.5%), and could shift to an even slower pace in
the medium term (graph 10).
TABLE 3
United States: Major economic indicators
QUARTERLY ANNUALIZED
VARIATION IN % (EXCEPT IF INDICATED)
Real GDP (2009 US$)
Personal consumption expenditures
Residential construction
Business fixed investment
Inventory change (US$B)
Public expenditures
Exports
Imports
Final domestic demand
Other indicators
Nominal GDP
Real disposable personal income
Employment according to establishments
Unemployment rate (%)
Housing starts1 (thousands of units)
Corporate profits*2
Personal saving rate (%)
Total inflation rate*
Core inflation rate*3
Current account balance (US$B)
2016
2017
ANNUAL AVERAGE
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
2015
2016f
2017f
2018f
3.2
2.8
-4.4
0.1
7.6
0.2
10.1
2.1
1.7
2.2
1.9
10.3
3.4
20.0
1.3
-0.5
2.5
2.3
1.5
1.7
5.6
2.4
25.0
0.7
1.0
4.0
1.8
3.3
3.6
2.2
8.4
20.0
1.8
1.5
4.0
3.8
3.6
4.1
2.9
7.1
20.0
1.1
1.5
4.0
3.9
2.6
3.2
2.8
2.0
50.0
1.3
1.5
7.5
2.7
2.6
3.2
11.7
2.1
84.0
1.8
0.1
4.6
3.1
1.6
2.6
4.9
-0.5
14.7
0.8
0.6
0.8
2.0
2.5
2.8
3.1
3.9
28.8
0.9
2.0
3.5
2.6
2.1
2.5
2.3
3.0
-6.3
1.5
0.2
-0.4
2.4
4.6
2.7
1.8
4.9
1,145
4.7
1.5
1.4
4.7
1,257
3.3
2.5
1.4
4.7
1,185
5.1
11.1
1.4
4.6
1,217
4.8
2.5
1.5
4.5
1,232
4.8
1.5
1.5
4.4
1,232
3.7
3.5
2.1
5.3
1,108
2.9
2.7
1.7
4.9
1,178
4.4
3.9
1.5
4.6
1,216
4.2
3.0
1.2
4.4
1,249
2.8
5.9
1.1
2.2
-452
11.0
5.9
1.8
2.1
-465
7.5
6.1
2.3
1.9
-479
9.0
7.8
2.0
1.7
-492
4.0
7.5
2.0
1.7
-506
4.0
7.1
2.0
1.7
-536
-3.0
5.8
0.1
1.8
-463
0.5
6.0
1.3
2.2
-479
6.1
7.1
2.1
1.8
-503
4.4
7.7
2.4
2.5
-516
f: forecasts; * Annual change; 1 Annualized basis; 2 Before taxes; 3 Excluding food and energy.
Sources: Datastream and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
7
ECONOMIC STUDIES
Canada
Conditions are improving but major concerns remain
FORECASTS
The third quarter of 2016 ended on a positive note with a 0.3% expansion in real GDP by industry in September. The carryover for
Q4 is therefore fairly high, meaning that real GDP advances will be upgraded for the quarter and for 2016 overall—real GDP growth
in 2016 could come in at 1.4%, up from the initial forecast of 1.2%. Projections for next year are still calling for 1.9% growth, with
several uncertainties that are clouding the outlooks. A 2.0% gain is also expected in 2018.
As expected, Canada’s economy rebounded in the third quarter
with a 3.5% gain (quarterly annualized), after a 1.3% contraction
last spring. Furthermore, the trade balance improved significantly
due to advances in exports that outpaced imports (graph 11).
Household consumption also made strong contributions to
real GDP growth, as did changes in inventory. That said, three
elements continue to cloud the horizon, a reflection of the fairly
high level of uncertainty hanging over Canada.
negative impacts of falling oil prices on investments in the energy
sector are gradually dissipating, and the higher level of oil prices
noted since the start of 2016 is clearly tied to this result. Activity
in the oil and gas extraction industry has been rising for a few
months now. Not only has the ground lost during the forest
fires in Alberta been recouped, the volume of production in this
sector reached a new historic peak in September (graph 13 on
page 9).
First of all, government spending was down 0.6% in the
third quarter, while the slight increase in investments by
public administrations was offset by a decline in government
consumption spending. The benefits of the federal government’s
stimulus plan are visibly not being felt. However, our scenario
includes some of the more significant impacts that are set to
occur in the coming quarters.
Third, there are signs that residential investment is running out
of steam after several quarters of sharp growth. This fall the
federal government introduced a new series of measures to
curtail insured mortgage credit and last summer the government
of British Columbia instituted measures to further control
property purchases by foreign buyers in the Vancouver area. If
we also take the slowly climbing mortgage rates into account,
our scenario for the next few quarters calls for residential
construction to decline and less favourable conditions for the
resale market.
Second, non-residential investment is still struggling. The third
quarter may have ended with a 3.5% increase—the first since
the summer of 2014—but the bulk of this advance stems
from the purchase of a module for the Hebron project in
Newfoundland and Labrador. Without this one-time purchase,
non-residential investment would have dipped again for the
quarter (graph 12). The scope of the declines recorded since
the spring is not nearly as high as in previous quarters. The very
In closing, Canada will inevitably be impacted by Donald Trump’s
victory in the U.S. presidential election. The positive effects
should however be evened out by some negative effects,
meaning that the overall impact could very well be negligible. On
one hand, stronger U.S. demand due to tax relief and a weaker
GRAPH 11
GRAPH 12
Canadian exports should continue to benefit from the uptrend in
foreign demand
The retreat by business investment is dwindling in Canada
Index
Index
Quarterly annualized variation in %
148
130
125
120
115
110
105
100
95
90
85
Real non-residential investment
138
128
118
108
98
88
2000
Desjardins
forecasts
2002
2004
2006
2008
2010
Foreign demand (left)
Sources: Statistics Canada and Desjardins, Economic Studies
2012
2014
Exports (right)
2016
2018
10
5
0
-5
-10
-15
-20
-25
-30
Q1
2014
Q2
Q3
Q4
Q1
2015
With the Hebron module
Q2
Q3
Q4
Q1
2016
Q2
Q3
Estimate excluding the Hebron module
Sources: Statistics Canada and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
8
ECONOMIC STUDIES
loonie bodes well for Canadian exports. The Keystone XL pipeline
could be back in the news, which would support Canada’s
energy sector. On the other, uncertainties about the free trade
agreement between Canada, the United States and Mexico are
another thing for businesses to worry about. This should limit
non-residential investment in the coming quarters. However, the
current assumption is that the changes that will eventually be
made to NAFTA will have very little effect on Canada.
GRAPH 13
Canada’s energy sector strengthens
Oil and gas extraction
In 2007 $B
110
105
100
95
90
85
2014
2015
2016
Sources: Statistics Canada and Desjardins, Economic Studies
TABLE 4
Canada: Major economic indicators
2016
2017
ANNUAL AVERAGE
QUARTERLY ANNUALIZED
VARIATION IN % (EXCEPT IF INDICATED)
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
2015
2016f
2017f
2018f
Real GDP (2007 $)
Final consumption expenditure [of which:]
3.5
1.6
2.7
2.1
1.3
2.4
2.2
2.5
1.7
2.5
1.8
2.6
0.9
1.8
1.4
2.1
1.9
2.3
2.0
2.4
Household consumption expenditure
Governments consumption expenditure
2.6
-1.2
1.7
3.0
1.7
4.0
1.9
4.0
2.1
3.5
2.4
3.0
1.9
1.5
2.2
2.1
2.0
3.1
2.2
2.8
Gross fixed capital formation [of which:]
Residential structures
Non-residential structures
Machinery and equipment
Intellectual property products
Governments gross fixed capital formation
Investment in inventories (2007 $B)
Exports
Imports
Final domestic demand
Other indicators
Nominal GDP
Real disposable personal income
Employment
Unemployment rate (%)
Housing starts1 (thousands of units)
Corporate profits*2
Personal saving rate (%)
Total inflation rate*
Core inflation rate*3
Current account balance ($B)
-1.3
-1.5
0.9
1.2
0.8
0.6
-4.6
-2.7
0.1
0.5
-5.5
15.7
-12.2
-17.0
2.6
-0.8
-12.5
5.0
-2.0
10.0
-1.9
-1.5
-2.0
-1.0
15.0
-2.2
-1.0
-1.0
-0.5
15.0
-2.1
-0.5
-0.5
1.5
10.0
-2.1
-0.5
0.0
2.0
8.0
3.8
-16.0
-3.3
-9.0
4.5
2.5
-9.5
-3.5
-5.8
1.1
-2.1
-1.6
-1.2
-2.7
10.4
-1.4
-0.2
0.0
0.9
5.6
4.6
8.9
3.3
0.9
2.0
4.3
-2.4
1.2
1.0
1.0
2.5
2.1
0.5
4.0
3.5
2.3
-1.0
3.5
3.5
2.1
-2.3
3.0
3.0
2.2
3.9
3.4
0.3
0.3
-0.2
1.1
-0.7
1.0
-0.4
2.5
1.9
1.8
0.3
2.7
2.8
2.0
6.1
7.4
0.3
7.0
200
4.7
0.5
2.4
6.9
189
2.5
2.0
0.6
6.8
182
4.0
2.0
0.8
6.8
177
3.2
2.0
1.1
6.8
173
3.8
2.5
1.1
6.7
171
0.2
3.3
0.8
6.9
196
2.0
2.8
0.7
7.0
196
3.6
2.5
1.0
6.8
176
3.8
2.5
1.0
6.6
172
-1.5
5.8
1.2
2.0
-18
-1.0
5.5
1.6
2.0
-17
4.0
5.5
2.0
1.8
-16
12.0
5.5
1.8
1.5
-15
3.0
5.5
2.1
1.6
-15
15.0
5.5
1.8
1.8
-14
-19.5
5.0
1.1
1.8
-68
-7.1
5.1
1.5
2.0
-71
8.3
5.5
1.9
1.7
-60
9.0
5.8
2.0
1.7
-50
f: forecasts; * Annual change; 1 Annualized basis; 2 Before taxes; 3 Excluding food and energy.
Sources: Datastream and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
9
ECONOMIC STUDIES
Quebec
More positive signs on the horizon
FORECASTS
Barring a few exceptions, as we saw in August when the real GDP by industry fell 0.5%, economic growth in Quebec has been fairly
solid since the start of the year. After eight months, the carryover for Quebec’s economy reached 1.5% for 2016, above our previous
projection of 1.3%. The economic conditions are clearly much rosier than we initially believed. That said, caution is in order as some
difficulties could resurface in the next few months, especially in the housing market. In these conditions, we are increasing our forecast
for 2016 to 1.5%, while we still expect a 1.6% gain in 2017.
The tides in Quebec’s economy seem to have turned, with
more positive results rolling in for some time now. After a
disappointing start to the year, very robust job creation in recent
months has boosted the labour market (graph 14). Since July,
Quebec has gained 71,900 new jobs—a 1.8% increase. In
contrast, job growth in the other provinces was only 0.5% for
the period. The jobs in Quebec are also of better quality, with
full-time jobs accounting for almost 60% of all new jobs created
since the start of 2016. Elsewhere in Canada, 60,200 full-time
jobs have been lost since the start of the year, while more than
150,000 part-time jobs have ben created. As such, Quebec’s
unemployment rate has fallen from 7.9% at the end of 2015 to
6.2% in November 2016—a historic low not seen since 1976
when Statistics Canada began releasing this data. Even if the
decline in the unemployment rate was supported by a drop in the
participation rate largely due to the aging of the population, the
employment rate (the number of jobs vs. the total population)
has also increased significantly in the last few months, which
points to a relatively healthy labour market (graph 15).
This upswing in the labour market is reflected in the household
confidence index, which shifted back above its historical average
last spring. That household consumer spending is also higher is
not surprising. After only nine months, the carryover for retail
sales in 2016 reached 4.0% (graph 16 on page 11)—retail sales
in Quebec have not increased at this pace since 2010.
Quebec’s public finances also reflect these more favourable
conditions. According to the preliminary results, the first six
months of fiscal 2016–2017 saw the Quebec government’s
own-source revenues climb by 2.1%, while the update last fall
expected a scant 1.4% gain. If we also take the slower than
expected growth in budget spending into account,
fiscal 2016–2017 is on track to end with another surplus. Note
that a balanced budget had been tabled in the fall update
(graph 17 on page 11).
That said, not everything is rosy and certain difficulties could
emerge in the months ahead. The labour market could
underperform in the next few months, given the volatility of job
data. In addition, the introduction of new federal measures to
restrict residential credit combined with the uptick in mortgage
rates should put the brakes on the resale and residential
construction markets. Lastly, business investment should remain
anemic, especially now that worries about the uncertain future of
NAFTA have edged up a notch.
GRAPH 14
GRAPH 15
Quebec’s labour market has improved in the last few months
Quebec’s unemployment rate is at a historic low and the
employment rate is fairly high
Number of jobs
In thousands
In thousands
50
40
30
20
10
0
-10
-20
-30
-40
In %
In %
4,200
17
62
4,175
15
60
13
58
11
56
9
54
4,050
7
52
4,025
5
1976
4,150
4,125
4,100
4,075
2014
2015
Monthly change (left)
Sources: Statistics Canada and Desjardins, Economic Studies
2016
Level (right)
1981
1986
1991
1996
Unemployment rate (left)
2001
2006
2011
2016
50
Employment rate (right)
Sources: Statistics Canada and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
10
ECONOMIC STUDIES
GRAPH 16
GRAPH 17
Quebec consumer consumption is picking up
Quebec's budget situation is benefiting from the better
economic conditions
Value of retail sales
Budget balance for fiscal 2016–2017
Annual variation in %
7
In $B
3
6.2
6
Carryover after
nine months
5
3.0
3
2
0
2011
2012
2013
0.0
0
-3
2014
2015
2016
Sources: Statistics Canada and Desjardins, Economic Studies
0.0
-0.2
-1.0
-2
1.7
0.5
2010
1.7
-1
2.5
1.2
1
2.7
1
4.0
4
2.1
2
-2.0
Operating balance
Contingency fund
According to the October 2016 update
Payments to the
Generations Fund
Total – Balance in
terms of the Act
Interim data for April to September
Sources: Ministère des Finances du Québec and Desjardins, Economic Studies
TABLE 5
Quebec: Major economic indicators
ANNUAL AVERAGE IN % (EXCEPT IF INDICATED)
2014
2015
2016f
2017f
2018f
Real GDP (2007 $)
Final consumption expenditure [of which:]
1.3
1.3
1.2
0.4
1.5
1.7
1.6
1.4
1.5
1.4
Household consumption expenditure
Governments consumption expenditure
1.6
1.1
1.1
-1.4
1.9
1.1
1.8
0.5
1.5
1.0
Gross fixed capital formation [of which:]
Residential structures
Non-residential structures
Machinery and equipment
Intellectual property products
Governments gross fixed capital formation
Investment in inventories (2007 $B)
Exports
Imports
Final domestic demand
Other indicators
Nominal GDP
Real disposable personal income
Weekly earnings
Employment
Unemployment rate (%)
Personal saving rate (%)
Retail sales
Housing starts1 (thousands of units)
Total inflation rate
-8.1
-1.7
-1.1
0.5
1.3
-0.8
-10.7
-17.0
-4.6
-11.2
0.3
-7.9
-3.5
-3.8
3.7
1.6
-2.4
-3.3
-0.4
-3.0
-4.0
-0.5
-0.7
0.0
10.0
0.0
0.5
0.5
1.0
5.0
2,370
3.6
-1.8
-0.6
2,365
3.8
0.9
0.0
2,400
-0.3
-1.5
0.9
2,750
3.5
2.2
0.9
2,500
3.2
2.0
1.0
1.9
1.1
2.1
0.0
7.7
4.0
1.7
38.8
1.4
2.6
2.4
2.1
0.9
7.6
5.4
0.5
37.9
1.1
2.5
3.0
1.4
0.8
7.1
4.8
4.0
37.7
0.8
3.2
2.7
2.1
1.0
6.9
4.2
2.8
34.0
1.6
3.4
2.0
2.2
0.5
6.8
4.5
2.7
32.0
1.9
f: forecasts; 1 Annualized basis.
Sources: Statistics Canada, Institut de la statistique du Québec, Canada Mortgage and Housing Corporation and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
11
ECONOMIC STUDIES
Ontario and other provinces
Regional disparities could gradually fade away
FORECASTS
Canada’s economic growth saw strong regional disparities in 2015 and 2016. These disparities could wane in 2017 and 2018, when
Alberta, Saskatchewan and Newfoundland and Labrador start to benefit from the energy sector’s stabilization. In contrast, the growth
champions of recent years, Ontario and British Columbia, could be especially hard hit by the housing market’s forecast slowdown.
Each province’s real GDP growth is expected to close in on the national average in 2017 and 2018, at around 2.0%.
ONTARIO
The province continues to benefit from better economic
conditions than most of Canada’s other regions, in particular
due to the positive impacts of stronger U.S. demand and a
relatively weak loonie. For example, employment has expanded
1.0% since the start of 2016, with 71,000 jobs added since
August. The unemployment rate fell to 6.3% in November, its
lowest point since the spring of 2008. The carryover for Ontario
manufacturers’ sales is also at 3.8% for 2016, while it is down
2.6% in the other provinces (graph 18). The housing market is
also still ascending. However, it is expected to start to slow in the
coming months, as the impacts of the new federal restrictions
and rise in mortgage rates start to be felt. Ontario’s real GDP
should rise 2.7% in 2016 and 2.3% in 2017. A gain of 2.2% is
expected for 2018.
WESTERN PROVINCES
Given the slight increase in oil prices, the problems in the energy
sector should fade in Alberta and Saskatchewan. According
to the Canadian numbers, energy sector output started to
increase substantially last summer. The rebuilding effort in the
Fort McMurray area after the forest fires should also stimulate
Alberta’s economic growth. Following another tough year
in 2016, the two provinces’ economic growth could close in on
the national average in 2017 and 2018.
British Columbia’s economic growth continues to stand out. As
in 2015, the province’s real GDP could post the fastest provincial
growth in 2016. However, British Columbia’s output could slow
somewhat in 2017 and 2018. Among other things, the housing
sector has been at the heart of the province’s economic growth
in recent years (graph 19), and this major contribution should
dwindle in the coming months. Because the imbalances seem
bigger in the Vancouver area’s housing market, British Columbia
could be especially hard hit by the federal government’s new
restrictive measures. The measures that the British Columbia
government announced last summer to limit foreign investors’
contribution in the Vancouver area should also curb growth by
the province’s housing market.
Manitoba’s economic growth should beat the national average
in 2016 for a second straight year. Among other things, the
manufacturing sector is benefiting from the lower loonie and
agriculture is doing relatively well. For example, deliveries of the
major grains are up 1.3% over the first ten months of 2016 from
the same period last year (graph 20). Under these conditions,
Manitoba should be able to keep annual growth at around 2%
until 2018.
GRAPH 18
GRAPH 19
Ontario’s manufacturing sector stands out
British Columbia has benefited heavily from the lively housing
market
Carryover for manufacturer sales for 2016
Contribution of residential investment to British Columbia’s real GDP
In %
In %
10
5
0.9
5.9
3.8
3.8
0.8
3.5
0.7
0.8
0
0.6
-0.2
0.5
-1.8
-5
-4.1
-10
0.4
0.3
-9.7
0.2
-15
-20
0.1
B.C.
Alta.
Sask.
Man.
Ont.
Que.
Sources: Statistics Canada and Desjardins, Economic Studies
N.B.
N.S.
P.E.I.
-18.2
N.L.
0.0
2011
2012
2013
2014
2015
Sources: Statistics Canada and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
12
ECONOMIC STUDIES
ATLANTIC PROVINCES
GRAPH 20
Grain deliveries are still fairly high in Manitoba
In general, production by the Atlantic provinces should keep
growing more slowly than the national average in the coming
years. Note that the region’s growth potential is lower. However,
economic conditions should slowly improve in Newfoundland
and Labrador, as the energy sector stabilizes. Also, the
commissioning of the new Hebron facilities should boost energy
production in the next few years.
Manitoba – Total grain deliveries for the first ten months of the year
In millions of tonnes
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2010
2011
2012
2013
2014
2015
2016
Sources: Statistics Canada and Desjardins, Economic Studies
TABLE 6
Ontario: Major economic indicators
ANNUAL AVERAGE IN % (EXCEPT IF INDICATED)
2014
2015
2016f
2017f
2018f
Real GDP (2007 $)
Final consumption expenditure [of which:]
2.7
2.4
2.5
2.6
2.7
2.6
2.3
2.1
2.2
1.9
Household consumption expenditure
Governments consumption expenditure
2.8
1.2
2.7
2.2
2.9
1.8
2.1
1.9
1.7
2.5
Gross fixed capital formation [of which:]
Residential structures
Non-residential structures
Machinery and equipment
Intellectual property products
Governments gross fixed capital formation
Investment in inventories (2007 $B)
Exports
Imports
Final domestic demand
Other indicators
Nominal GDP
Real disposable personal income
Weekly earnings
Employment
Unemployment rate (%)
Personal saving rate (%)
Retail sales
Housing starts1 (thousands of units)
Total inflation rate*
1.5
5.3
1.5
3.1
0.8
0.7
7.7
4.3
-5.4
-0.1
7.2
9.7
6.8
-2.7
0.6
6.3
-0.9
-3.0
-2.7
0.0
-3.0
-0.5
-0.5
0.0
22.6
-1.9
0.5
0.8
1.5
6.0
4,061
4.4
4.0
2.2
3,457
2.8
3.7
3.1
500
3.4
2.0
2.4
-1,000
3.0
2.5
2.3
-500
2.8
2.1
1.7
4.7
0.6
2.0
0.8
7.3
2,2
5.0
59.1
2.4
4.9
3.5
2.6
0.7
6.8
3.0
4.2
70.2
1.2
4.1
4.0
1.0
1.1
6.6
2.4
4.2
73.9
1.8
4.4
3.0
2.0
1.2
6.4
2.4
3.5
64.1
2.1
4.4
2.0
2.3
1.3
6.2
2.6
3.2
61.9
2.2
f: forecasts; * Annual change; 1 Annualized basis.
Sources: Statistics Canada, Ontario's Ministry of Finance, Canada Mortgage and Housing Corporation and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
13
ECONOMIC STUDIES
TABLE 7
Canada: Major economic indicators by provinces
ANNUAL AVERAGE IN % (EXCEPT IF INDICATED)
2014
2015
2016f
2017f
2018f
Real GDP growth – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
2.6
0.1
1.3
2.7
1.5
2.4
5.0
3.3
0.9
0.5
1.2
2.5
2.2
-1.3
-3.6
3.3
1.4
0.5
1.5
2.7
1.9
0.0
-2.5
3.0
1.9
0.7
1.6
2.3
2.0
1.7
1.9
2.0
2.0
1.3
1.5
2.2
2.0
2.0
2.5
2.5
Total inflation rate – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
2.0
1.7
1.4
2.4
1.9
2.4
2.6
1.0
1.1
0.4
1.1
1.2
1.2
1.6
1.1
1.1
1.5
1.9
0.8
1.8
1.4
1.1
1.0
1.8
1.9
1.9
1.6
2.1
1.8
1.7
1.9
2.1
2.0
1.9
1.9
2.2
1.8
1.7
2.0
2.2
Employment growth – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
0.6
-0.9
0.0
0.8
0.1
1.0
2.2
0.6
0.8
-0.4
0.9
0.7
1.5
0.5
1.2
1.2
0.7
-0.7
0.8
1.1
-0.5
-0.9
-1.6
3.0
1.0
0.6
1.0
1.2
0.7
0.5
0.3
1.5
1.0
0.7
0.5
1.3
0.8
0.7
1.0
1.3
Unemployment rate – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
6.9
10.0
7.7
7.3
5.4
3.8
4.7
6.1
6.9
10.0
7.6
6.8
5.6
5.0
6.0
6.2
7.0
10.0
7.1
6.6
6.1
6.3
8.1
6.1
6.8
9.9
6.9
6.4
6.0
6.1
7.8
6.0
6.6
9.6
6.8
6.2
5.8
5.8
7.4
6.0
Retail sales growth – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
4.6
3.1
1.7
5.0
4.3
4.6
7.5
5.6
1.7
0.7
0.5
4.2
1.5
-3.5
-4.6
6.0
3.3
3.0
4.0
4.2
4.4
0.5
-2.1
6.2
3.2
2.5
2.8
3.5
3.8
1.7
1.2
5.2
3.0
2.6
2.7
3.2
3.4
2.2
2.5
4.0
189.3
8.0
38.8
59.1
6.2
8.3
40.6
28.4
195.5
8.1
37.9
70.2
5.5
5.1
37.3
31.4
196.3
7.9
37.7
73.9
5.4
4.8
24.6
42.0
175.6
7.5
34.0
64.1
5.0
5.0
26.0
34.0
171.9
7.4
32.0
61.9
4.8
6.0
27.8
32.0
Housing starts – Canada (thousands of units)
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
f: forecasts
Sources: Statistics Canada, Canada Mortgage and Housing Corporation and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
14
ECONOMIC STUDIES
Medium-term issues and forecasts
Several elements could hurt the global economy over the medium range
Our medium-term scenario includes an economic slowdown
that will materialize around 2019 or 2020. Donald Trump’s win
triggered a relatively positive reaction from the markets,
anticipating that some of the policies proposed would stimulate
economic growth in the near term. However, a pullback could
follow this slightly livelier period. There is also reason for concern
about the impacts of a potentially rapid increase in public debt
in the United States, in addition to the higher interest rates and
demographic changes occurring in many countries. A surge in
U.S. protectionism could add to the difficulties. A great deal of
uncertainty nonetheless surrounds the medium-term scenario,
which will have to be adjusted in keeping with the actual
directions the Trump administration takes.
A pullback in sight
The U.S.’s economic growth cycle is starting to age, which
already argued for an eventual slowdown over the medium
term. Donald Trump’s win increased the probability of such a
slowdown around 2019 or 2020. In the near term, some of his
proposed policies, such as tax cuts, could be good for economic
growth, but the benefit would not last.
Bigger increases in bond yields have been seen since the
U.S. presidential election. If they persist in the years to come,
these increases could hurt the economy. The impacts would
not solely be focused in the United States, given the correlation
between the various global bond yields, particularly in the longer
maturities. Households around the world could also have to cope
with higher oil prices and potentially slower growth by different
asset classes.
Debt could be a problem
A lot of uncertainty persists about how Donald Trump plans
to finance his tax cuts and increase some public expenditures.
It seems most likely that U.S. public debt will shoot up in the
next few years (graph 21). The addition of government bonds
to the market will drain more savings, which could result in a
slower pace for investment and consumption. In economics,
this phenomenon is called a crowding-out effect. U.S. bonds
could find foreign takers, but this would mean a worsening of
the U.S. trade deficit. This scenario seems less likely assuming
a surge in U.S. protectionism. That being said, the U.S. dollar’s
rise against most currencies will make it difficult to lower or even
stabilize the U.S. trade deficit.
GRAPH 21
Donald Trump's proposals could substantially increase public
debt
Publicly held U.S. federal government debt
In % of GDP
110
Scenario with the Donald Trump
measures
100
90
80
70
60
2010
2012
2014
2016
2018
2020
2022
2024
2026
Congressional Budget Office's core scenario
Committee for a Responsible Federal Budget's scenario
Sources: Committee for a Responsible Federal Budget, Congressional Budget Office
and Desjardins, Economic Studies
another crisis, but it certainly makes the economy more sensitive
to adverse shocks.
Difficult to accelerate economic growth potential
Demographic change will remain a major issue in the coming
years. Population ageing will increase the pressure on public
finances, while the scarcity of labour will reduce economic
growth potential. More rigid immigration policy could exacerbate
the phenomenon in the United States. In this context, we cannot
really expect growth rates to return to the averages seen in
previous decades. Times when U.S. growth beats 3.0% will
be much scarcer. Canada will rarely get above 2.5%, with the
average running between 1.5% and 2.0%.
Quebec will be especially affected by demographic change.
Annual real GDP growth should converge on 1.0% to 1.5% and
job creation will be subdued. The pressure to increase investment
and raise productivity will be heavy. Ontario will do better
demographically and the province should post growth a little
above the Canadian average.
Debt could also give other countries a headache. At about 250%
of GDP, global debt (private and public sector) is now higher than
it was during the last financial crisis. It should be noted that high
global debt does not, on its own, guarantee that we will see
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
15
ECONOMIC STUDIES
TABLE 8
Medium-term major economic and financial indicators
ANNUAL AVERAGE
AVERAGES
2015
2016f
2017f
2018f
2019f
2020f
2021f
2009–2015
2016–2021f
2.6
0.1
5.3
-0.7
0.26
3.26
0.05
2.13
2.84
49
1,160
1.6
1.3
4.9
10.1
0.50
3.50
0.30
1.85
2.60
43
1,250
2.5
2.1
4.6
6.7
1.00
4.00
0.85
2.65
3.25
55
1,150
2.1
2.4
4.4
2.1
1.65
4.65
1.50
3.05
3.45
57
1,050
1.8
2.5
4.6
0.0
1.80
4.80
1.60
2.80
3.10
52
1,150
1.3
1.8
5.2
4.0
1.50
4.50
1.30
2.45
2.75
52
1,200
1.9
1.5
5.8
8.0
1.55
4.55
1.40
2.80
3.05
58
1,150
1.5
1.4
7.8
12.8
0.25
3.25
0.08
2.57
3.54
81
1,325
1.9
1.9
4.9
5.1
1.33
4.33
1.16
2.60
3.03
53
1,158
0.9
1.1
0.8
144
6.9
196
-11.1
0.78
0.65
2.79
2.97
4.67
0.53
0.55
0.86
1.53
2.20
1.4
1.5
0.7
129
7.0
196
16.8
0.76
0.50
2.70
3.15
4.65
0.50
0.55
0.70
1.25
1.90
1.9
1.9
1.0
186
6.8
176
5.9
0.72
0.50
2.70
3.15
4.75
0.55
0.80
1.25
1.80
2.45
2.0
2.0
1.0
191
6.6
172
4.0
0.71
0.55
2.75
3.20
4.95
0.65
1.15
1.75
2.20
2.60
1.2
1.6
0.6
113
6.6
175
0.0
0.73
0.80
3.00
3.20
4.95
0.75
1.05
1.55
2.00
2.35
1.0
1.1
0.3
56
6.8
170
5.0
0.72
0.50
2.70
3.00
4.85
0.50
0.70
1.15
1.70
2.00
1.7
1.5
0.5
91
6.6
180
10.0
0.77
0.55
2.75
3.20
5.05
0.60
1.00
1.55
2.05
2.30
1.6
1.5
0.8
134
7.4
189
6.3
0.93
0.81
2.83
3.36
5.25
0.74
1.14
1.75
2.45
3.03
1.5
1.6
0.7
128
6.7
178
7.0
0.73
0.57
2.77
3.15
4.87
0.59
0.88
1.33
1.83
2.27
0.23
-0.32
-0.40
-0.35
-1.40
-1.35
-0.95
-1.25
-1.00
-0.95
-0.60
-0.50
-0.55
-0.45
-0.40
-0.90
-1.10
-1.05
0.52
-0.52
-1.24
0.52
-0.52
-1.24
-0.57
-0.77
-0.77
Quebec
Real GDP (var. in %)
Total inflation rate (var. in %)
Employment (var. in %)
Employment (thousands)
Unemployment rate
Retail sales (var. in %)
Housing starts (thousands of units)
1.2
1.1
0.9
37
7.6
0.5
38
1.5
0.8
0.8
33
7.1
4.0
38
1.6
1.6
1.0
41
6.9
2.8
34
1.5
1.9
0.5
21
6.8
2.7
32
1.0
1.5
0.2
8
6.6
2.3
32
0.8
1.0
0.1
4
6.7
2.0
30
1.2
1.5
0.4
17
6.6
2.5
33
1.2
1.5
0.8
31
7.9
2.0
44
1.3
1.4
0.5
21
6.8
2.7
33
Ontario
Real GDP (var. in %)
Total inflation rate (var. in %)
Employment (var. in %)
Employment (thousands)
Unemployment rate
Retail sales (var. in %)
Housing starts (thousands of units)
2.5
1.2
0.7
45
6.8
4.2
70
2.7
1.8
1.1
75
6.6
4.2
74
2.3
2.1
1.2
81
6.4
3.5
64
2.2
2.2
1.3
90
6.2
3.2
62
1.3
1.7
0.7
50
6.1
3.0
62
1.1
1.2
0.4
29
6.3
2.5
60
1.7
1.6
0.6
43
6.1
3.2
65
1.5
1.7
0.7
45
7.9
2.8
64
1.9
1.8
0.9
61
6.3
3.3
64
IN % (EXCEPT IF INDICATED)
United States
Real GDP (var. in %)
Total inflation rate (var. in %)
Unemployment rate
S&P 500 index (var. in %)1
Federal funds rate
Prime rate
Treasury bills – 3-month
Federal bonds – 10-year
Federal bonds – 30-year
WTI oil (US$/barrel)
Gold (US$/ounce)
Canada
Real GDP (var. in %)
Total inflation rate (var. in %)
Employment (var. in %)
Employment (thousands)
Unemployment rate
Housing starts (thousands of units)
S&P/TSX index (var. in %)1
Exchange rate (US$/C$)
Overnight funds
Prime rate
Mortgage rate – 1-year
Mortgage rate – 5-year
Treasury bills – 3-month
Federal bonds – 2-year
Federal bonds – 5-year
Federal bonds – 10-year
Federal bonds – 30-year
Yield spreads (Canada—United States)
Treasury bills – 3-month
Federal bonds – 10-year
Federal bonds – 30-year
f: forecasts; WTI : West Texas Intermediate; 1 Variations are based on observation of the end of period.
Sources: Datastream, Statistics Canada, Canada Mortgage and Housing Corporation and Desjardins, Economic Studies
DECEMBER 2016
| ECONOMIC & FINANCIAL OUTLOOK
16