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Canada’s Prospects:
Implications From A Slow Growth Environment
Craig Alexander
Incoming SVP and Chief Economist, The Conference Board of Canada
August 2016
conferenceboard.ca
Global Economy Struggling to Grow
7.0
Annual Contribution to World Real GDP Growth, %
Developing
Economies
Advanced
Economies
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15E
Source: IMF
2
Sustained Commodity Price Shock
WTI Crude Price, US$ per barrel
110
100
90
80
52%
drop
70
60
50
40
30
20
10
0
2002 03
04
05
06
07
08
09
10
11
12
13
14
15
16f 17f 18f 19f
Sources: Bureau of Economic Analysis The Conference Board of Canada.
3
U.S. Economic Growth
per cent change
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
03
04
05
06
07
08
09
10
11
12
13
14
15
16f
17f
Sources: Bureau of Economic Analysis The Conference Board of Canada.
4
Canada’s Real GDP: Continued Slow Growth
per cent change
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
03
04
05
06
07
08
09
10
11
12
13
14
15
16f
17f
18f
Sources: Statistics Canada; The Conference Board of Canada.
5
2016 Real GDP by Province.
per cent change, basic prices, $2007.
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
BC
ONT
PEI
MAN
QUE
NS
NL
SASK
Canada: 1.5 %
NB
ALB
Sources: The Conference Board of Canada; Statistics Canada
6
2017 Real GDP by Province.
per cent change, basic prices, $2007.
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
BC
MAN
ONT
ALB
QUE
PEI
NS
Canada: 2.3%
NB
SASK
NL
Sources: The Conference Board of Canada; Statistics Canada
7
Short-Term Interest Rates
Canadian Bank Rate and U.S. Federal Funds Rate.
7
Canada
United States
6
5
4
3
2
1
0
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16f
17f
Sources: The Conference Board of Canada; Statistics Canada.
8
The Loonie and the Oil Price
(WTI $US, $US/$C)
Dollar (left)
Oil Price (right)
1.10
120
1.05
110
1.00
100
0.95
90
0.90
80
0.85
70
0.80
60
0.75
50
0.70
40
0.65
30
0.60
20
Sources: The Conference Board of Canada; U.S. EIA; Statistics Canada.
9
Government Debt as a Share of GDP
per cent, 2015 estimates, net debt, * reporting gross debt for India and China
.
200
180
160
140
120
100
80
60
40
20
0
Greece
Japan
Portugal
Italy
Spain
United
Kingdom
India*
Canada
China*
Source: International Monetary Fund.
10
Canada Federal and Regional Deficits
National Accounts Basis, $billions
Federal
Provinces
20
10
0
-10
-20
-30
-40
-50
Sources: Statistics Canada; The Conference Board of Canada.
11
Employment Growth
per cent change
2.5
about
110,000 jobs
2.0
1.5
1.0
0.5
0.0
-0.5
272,000
jobs lost
-1.0
-1.5
-2.0
03
04
05
06
07
08
09
10
11
12
13
14
15
16f
17f
Sources: Statistics Canada; The Conference Board of Canada.
12
Unemployment Rate vs. Natural Rate
per cent
Unemployment Rate
Natural Rate
13.0
12.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
Sources: Statistics Canada.; The Conference Board of Canada.
13
Growth in Industrial Composite Average
Weekly Wage versus CPI
per cent change
Average Weekly Wages
CPI
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
03
04
05
06
07
08
09
10
11
12
13
14
15
16f
17f
Sources: Statistics Canada; The Conference Board of Canada.
14
Housing Affordability Becoming A Problem
average home payments as a share of income
32
30
28
26
24
22
20
18
16
Source: The Conference Board of Canada.
15
Structural Forces also Shaping Outcomes
•  Globalization
•  Technical Change
•  Leading to Shifts in Labour Demand
– Deindustrialization
– Decline in unionization
– Increase in high skill, decrease in middle skill jobs
•  Aging Demographics
•  Urbanization
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Employment Key Sectors
000’s, 2002-2017
2,400
Manufacturing
Professional & Other Services
2,300
2,200
2,100
2,000
1,900
1,800
1,700
1,600
Source: Statistics Canada.
17
Employment Creation by Skill Level
18
Inequality on the Rise
19
U.S. Workers Not Benefiting From Productivity
20
Canadian Worker Income Tied to Productivity
21
Canada Has A Productivity Problem
CANADA BUSINESS SECTOR LABOUR PRODUCTIVITY
6.0
Year-over-Year % Change
5.0
4.0
3.0
2.0
1.0
0.0
50s
60s
70s
80s
Source: Statistics Canada, Centre for Study of Living
Standards
90s
00s
22
Population Aging: Distribution By Age, 2014
and 2035
2014
2035
600,000
500,000
400,000
300,000
200,000
100,000
0
Sources: The Conference Board of Canada; Statistics Canada.
23
Slower Economic Growth A Fiscal Challenge
HISTORICAL & PROJECTED LONG-TERM GROWTH
3.5
Year-over-Year % Change
1982-201
3
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Canada
Atlantic
QC
ON
MB
SK
AB
BC
Source: Statistics Canada, Forecast by TD Economics
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Implications
•  Slack in labour markets suggest that continued monetary and fiscal stimulus is
appropriate, but policy levers unlikely capable of fuelling above sustained above
trend growth.
•  Given fiscal constraints, governments will need to target their efforts. Understand
cannot reverse globalization, technical change, etc.
•  Inflation is not a substantive risk, so focus should be on measures to promote full
employment and broad-based gains in living standards (i.e. inclusive growth).
•  In labour markets, need to support displaced and vulnerable workers more
effectively. Provide adequate income support while providing training to
reengage in labour market or move up the skills curve.
•  Remove barriers to success of underutilized or underemployed workers (e.g.
Youths, Immigrants, Aboriginals, Unemployed older workers)
•  Build workforce of the future: early childhood development, strengthen education
outcomes, improve essential skills, education outcomes.
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Implications
•  While improving labour supply, must strive to improve productivity and
competitiveness of the Canadian economy. This will underpin labour demand.
•  Address undesired or unintentional socioeconomic consequences from the slow
growth and low interest rate environment. For example, lean against rising
income inequality and address inadequate affordabile rental housing.
•  On a positive note, there has been a decided shift in public attitudes. Evident in
last federal election. Government has been given a mandate to make progress
along these lines and the last budget put a focus on inclusive growth.
•  Importance of labour market reforms has not been lost on policymakers.
Progress is being made, but this is a marathon, not a sprint. And, the labour
market is continuing to evolve, meaning that labour market policies cannot be
static.
•  Canada’s productivity conundrum has yet to be resolved by economists, so the
policy prescription is ambiguous.
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