Download Gradual though Sustained Recovery

Shifting gears – can the global
economy stay in drive?
Dawn Desjardins
September 2010
ECONOMICS I RESEARCH
World outlook unsettled by round of weak data
World real GDP growth
10
Annual % change
Forecast
8
6
4
2
0
-2
70
75
80
85
90
Source: IMF, RBC Economics Research
ECONOMICS I RESEARCH
2
95
00
05
10
World economy spurted out of recession
Growth in OECD countries
% change, year-over-year
6
4
2
0
-2
-4
-6
00
01
02
03
04
05
Source: IMF, RBC Economics Research
ECONOMICS I RESEARCH
3
06
07
08
09
10
Activity indices signal slower growth
Global purchasing managers' index
70
50+=expansion
65
60
55
50
45
Services
40
Manufacturing
35
30
00
01
02
03
04
05
Source: JP M organ, RBC Economics Research
ECONOMICS I RESEARCH
4
06
07
08
09
10
Leading indicators say this too
OECD leading economic indicator
15
% change, year-over-year
10
5
0
-5
-10
-15
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: OECD, RBC Economics Research
ECONOMICS I RESEARCH
5
Baltic Dry Index
Baltic dry index
Index
14000
12000
10000
8000
6000
4000
2000
0
08
09
10
Source: Bloomberg, RBC Economics Research
ECONOMICS I RESEARCH
6
Slowing hasn’t shown up in trade volumes yet
International trade volumes
175
Volumes
Slumping demand + Tightening credit conditions
150
125
100
75
00
01
02
03
04
05
06
07
08
09
Source: Netherlands Bureau for Economic Policy Analysis, RBC Economics Research
ECONOMICS I RESEARCH
7
10
Exports = support for the global economy
Growth in world exports of goods
15
Annual % change
Forecast
10
5
0
-5
-10
-15
98
99
00
01
02
03
04
05
Source: IMF, RBC Economics Research
ECONOMICS I RESEARCH
8
06
07
08
09
10
11
Industrial production off the boil but still hot
Rebound in world industrial
production
20
6-month annualized percent change
15
10
5
0
-5
-10
-15
-20
-25
00
01
02
03
04
05
06
07
08
09
Source: Netherlands Bureau for Economic Policy Analysis, RBC Economics Research
ECONOMICS I RESEARCH
9
10
Credit standards have eased – good for trade
Credit Standards
100
Net % tightening
80
U.S.
Euro
U.K.
Canada
60
40
20
0
-20
-40
02
03
04
05
06
07
08
Source: Federal Reserve Board, European Central Bank, Bank of England, Bank of
Canada, RBC Economics Research
ECONOMICS I RESEARCH
10
09
10
Central banks are doing whatever is necessary to keep recovery going
Weighted Policy Rate*
5.0
%
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
06
07
08
09
10
*target policy rate weighted by 2007 GDP in USD terms; US, JP, DE, UK, FR, IT, CA, AUC
Source: RBC Economics Research, Haver Analytics
ECONOMICS I RESEARCH
11
US economy slowed but didn’t stop in second quarter
U.S real GDP growth
10
8
6
4
2
0
-2
-4
-6
-8
97
98
99
00
01
02
03
04
Quarter-over-quarter annualized % change
Source: Bureau of Economics Analysis, RBC Economics Research
ECONOMICS I RESEARCH
12
05
06
07
08
09
10
Year-over-year % change
Transitory factors: most of pop from inventory rebuild is done
Inventories contribution to GDP growth
%
1.5
Forecast
1.0
0
0.5
0.0
-0.5
-1.0
2008
2009
2010
Source: Bureau of Economic Anlaysis, RBC Economics Research
ECONOMICS I RESEARCH
13
2011
Transitory factors: Stimulus support coming to an end
U.S. fiscal stimulus
%
5
4
3
2
1
0
-1
-2
-3
-4
-5
2009
2010
2011
Estimated contribution of stimulus
2012
GDP ex. stimulus
Source: Bank of Canada, U.S. Bureau of Economic Analysis, RBC Economics Research
ECONOMICS I RESEARCH
14
GDP
Expiry of homebuyers tax credit leaves sales pace sluggish
Home sales
8000 SAAR, Thous
7000
SAAR, Thous
1600
1400
Existing home sales (LHS)
6000
1200
5000
1000
4000
800
3000
600
New homes sales (RHS)
2000
400
1000
200
0
0
00
01
02
03
04
05
06
07
08
09
10
Source: National Association of Realtors, Census Bureau, RBC Economics Research
ECONOMICS I RESEARCH
15
Homes are affordable and mortgage rates at all-time lows
Housing affordability index
30-year fixed mortgage rate
200
8
%
180
160
7
140
120
100
6
80
60
5
40
20
0
4
00
01
02
03
04
05
06
07
08
09
10
04
Source: National Association of Realtors, RBC Economics Research
ECONOMICS I RESEARCH
05
06
07
Source: Wall Street Journal, RBC Economics Research
16
08
09
10
Starts still at historically low levels, modest gains ahead
Housing starts
2500
SAAR, Thous.Units
1.2
Contribution to GDP from residential
construction
%
Forecast
2000
0.8
1500
0.4
0.0
1000
-0.4
500
-0.8
0
-1.2
00
01
02
03
04
05
06
07
08
09
10
11
00
Source: Census Bureau, RBC Economics Research
ECONOMICS I RESEARCH
01
02
03
04
05
06
07
Source: Bureau of Economic Analysis, RBC Economics Research
17
08
09
10
11
The job market hasn’t delivered yet
Change in monthly payrolls
500
400
300
200
100
0
-100
Unemployment rate
SA, Thous
12
%
10
8
6
-200
-300
-400
-500
-600
-700
-800
-900
4
Change in total private employment
2
Change in total nonfarm employment
0
00
00
01
02
02
03
04
04
05
06
06
07
08
08
09
00
10
02
03
04
05
06
07
Source: Bureau of Labor Statistics, RBC Economics Research
Source: Bureau of Labor Statistics, RBC Economics Research
ECONOMICS I RESEARCH
01
18
08
09
10
11
Households trying to get finances under control
Household balance sheet
20
% change, year-over-year
15
10
Total liabilities
5
0
-5
-10
Total assets
-15
-20
00
01
02
03
04
05
06
Source: Federal Reserve Board, RBC Economics Research
ECONOMICS I RESEARCH
19
07
08
09
10
…and rebuilding their nest eggs
US savings rate
12
%
10
8
6
4
2
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Source: Bureau of Economic Analysis, RBC Economics Research
ECONOMICS I RESEARCH
20
Spending will remain sluggish
Consumer spending
20
% change, year-over-year
15
10
5
0
-5
Durables
Non-durables
-10
Services
-15
00
01
02
03
04
05
06
07
08
Source: Bureau of Economic Analysis, RBC Economics Research
ECONOMICS I RESEARCH
21
09
10
11
Businesses buying M&E, not investing in real estate yet
Business investment
30
% change, year-over-year
Forecast
Equipment and software
20
10
0
-10
Structures
-20
-30
00
01
02
03
04
05
06
07
08
Source: Bureau of Economic Analysis, RBC Economics Research
ECONOMICS I RESEARCH
22
09
10
11
Soft domestic demand sets up for more moderate import growth
Domestic demand and imports
20
% change, year-over-year
Forecast
10
0
-10
-20
Imports
Final sales to domestic purchasers
-30
00
01
02
03
04
05
06
07
08
Source: Bureau of Economic Analysis, RBC Economics Research
ECONOMICS I RESEARCH
23
09
10
11
Moderate global recovery supports US export growth
Real exports
20
% change, year-over-year
Forecast
15
10
5
0
-5
-10
-15
-20
00
01
02
03
04
05
06
07
08
Source: Bureau of Economic Analysis, RBC Economics Research
ECONOMICS I RESEARCH
24
09
10
11
Low rates will prevent another dip
U.S. GDP growth
10
Annualized % change, quarter-over-quarter
Forecast
8
6
4
2
0
-2
Annual growth rates
2008 2009 2010f 2011f
0.0
-2.6
2.7
3.0
-4
-6
-8
00
01
02
03
04
05
06
07
08
Source: Bureau of Economic Analysis, RBC Economics Research
ECONOMICS I RESEARCH
25
09
10
11
Price pressures absent and talk of deflation
U.S. inflation
6
% change, year-over-year
4
2
0
-2
00
01
02
03
04
05
06
07
Source: Bureau of Labor Statistics, RBC Economics Research
ECONOMICS I RESEARCH
26
08
09
10
11
Canada got off to a speedy start
Canadian real GDP growth
8
6
4
2
0
-2
-4
-6
-8
97
98 99 00 01 02 03 04 05
Quarter-over-quarter annualized % change
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
27
06
07 08 09 10
Year-over-year % change
Canada’s bump from stimulus will end next year
Federal budget deficit
90
$ billions
80
70
60
50
40
30
20
stimulus
10
package
0
2008-09
2009-10
2010-11
Source: Ministry of Finance Canada, RBC Economics Research
ECONOMICS I RESEARCH
28
2011-12
Support from inventory rebuild is waning
Inventories contribution to GDP growth
%
1.5
Forecast
1.0
0.5
0.0
-0.5
-1.0
-1.5
2008
2009
2010
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
29
2011
Bank to slowly raising policy rate
BoC overnight rate
%
7
Forecast
6
5
4
3
2
1
0
02
03
04
05
06
07
Source: Bank of Canada, RBC Economics Research
ECONOMICS I RESEARCH
30
08
09
10
11
Financial conditions are still accommodative
Financial conditions index
3
Index
Easier
2
1
0
-1
-2
Tighter
-3
-4
-5
00
01
02
03
04
05
Source: Bank of Canada, RBC Economics Research
ECONOMICS I RESEARCH
31
06
07
08
09
10
Currency being rocked by worries about global recovery
Canadian dollar forecast
U.S dollar per Canadian dollar
1.1
Forecast
1.0
0.9
0.8
0.7
0.6
81
83
85
87
89
91
93
95
97
Source: Bank of Canada, RBC Economics Research
ECONOMICS I RESEARCH
32
99
01
03
05
07
09
11
Spending on capital goods to do heavy lifting for now
Business investment
30
% change, year-over-year
20
10
0
-10
-20
Nonres Structures
-30
M&E
-40
-50
00
01
02
03
04
05
06
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
33
07
08
09
10
11
Strong C$ makes capital goods imports cheaper
Import growth
20
% change, year-over-year
Forecast
15
10
5
0
-5
-10
-15
-20
-25
00
01
02
03
04
05
06
07
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
34
08
09
10
11
Canadian exports are in demand
Canadian exports by sector
Diversifying Canada's exports
90
80
%
81
75.6
Other
73
70
Agriculture
Auto Products
60
Energy
50
Products
40
30
27
24.4
19
20
Machinery
Forestry
10
0
Industrial
1980-1999
2000-2008
U.S
2009-2010
Goods
Rest of World
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
35
Oil prices - historically high but below peak
Energy prices
160
US$/barrel
$/mmbtu
Forecast
140
16
14
120
12
Natural Gas (RHS)
100
10
80
8
60
6
40
4
Crude Oil (LHS)
20
2
0
0
1999
2001
2003
2005
2007
Source: World Bank, Wall Street Journal, RBC Economics Research
ECONOMICS I RESEARCH
36
2009
2011
Commodity prices have recovered
Industrial metals index
600
Index 100=1969
500
400
300
20-year average
200
100
Aluminum, copper, lead, nick el, zinc
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: S&P Goldman Sachs Commodity Indexes, RBC Economics Research
ECONOMICS I RESEARCH
37
Export sector recovery faces risk if US falters
Export growth
15
% change, year-over-year
Forecast
10
5
0
-5
-10
-15
-20
00
01
02
03
04
05
06
07
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
38
08
09
10
11
Canada’s consumer to support recovery
10
Consumer expenditure and
contribution to GDP
%
Annualized % change, quarter-over-quarter
Forecast
8
6
4
2
0
-2
Real PCE contribution to real GDP change
PCE
-4
00
01
02
03
04
05
06
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
39
07
08
09
10
11
Strong employment gains – 94% of jobs lost have been recovered
Canada Employment: Indexed to Past and
Current Recession Employment Peaks
104
Forecast
102
100
98
96
94
Q3-1981
Q2-1990
92
Q4-2008
ECONOMICS I RESEARCH
40
t+12
t+11
t+10
t+9
t+8
t+7
t+6
t+5
t+4
t+3
t+2
t+1
peak
t-1
t-2
t-3
t-4
t-5
t-6
t-7
t-8
90
Low rates dampen debt service costs for households
Canadian household debt service &
debt-to-PDI
Debt as a % of PDI
Interest payments as a % of PDI
150
11
Debt-to-PDI (LHS)
Debt service ratio (RHS)
136
10
122
9
108
8
94
7
80
6
90
92
94
96
98
00
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
41
02
04
06
08
10
Housing market eases from blistering pace
Sales and prices of existing homes
50000
% change, year-over-year
Units
45000
25
20
40000
15
35000
30000
10
25000
5
20000
0
15000
10000
Sales (LHS)
5000
Prices (RHS)
-5
-10
0
-15
99
00
01
02
03
04
05
Source: CREA, RBC Economics Research
ECONOMICS I RESEARCH
42
06
07
08
09
10
Affordability is not as stretched as prior to recession
Housing affordability
60
% of household income taken by
ownership cost
50
40
30
20
Two-storey
Bungalows
Townhouses
Condos
10
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Statistics Canada, Royal LePage, RBC Economics Research
ECONOMICS I RESEARCH
43
Canada will be a growth leader (outside emerging economies)
Canada's real GDP
8
Annualized % change, quarter-over-quarter
Forecast
6
4
2
0
-2
Annual growth rates
2008 2009 2010f 2011f
0.5
-2.5
3.3
3.2
-4
-6
-8
00
01
02
03
04
05
06
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
44
07
08
09
10
11
No worries about inflation
Canadian inflation
7
% change, year-over-year
Forecast
6
Core
Headline
5
4
BoC inflation target
3
2
1
0
-1
-2
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Source: Statistics Canada, RBC Economics Research
ECONOMICS I RESEARCH
45
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ECONOMICS I RESEARCH
46