Download The outlook for Canada is slightly better for 2016 after a

December 21, 2015
The outlook for Canada is slightly better for 2016 after
a disappointing 2015
Highlights
•
Economic growth in advanced nations will continue to improve in the coming years, but will not accelerate sharply.
The global economy should get somewhat firmer support
from emerging countries, even though the Chinese economy will slow again.
•
In the United States, economic growth slowed last
summer and should be less lively in the fourth quarter
of 2015. Manufacturing in particular is struggling to shake
off its sluggishness.
•
In Canada, despite last summer’s upswing, growth promises to be disappointing in the fourth quarter, as weak
oil prices went even lower. The growth outlook is better
for 2016 and 2017, once the negative effects of the drop
in energy prices slowly dissipate and the federal government’s infrastructure investment increases.
•
•
There are still major disparities between other provinces’
economic outlooks. Provinces that are more focused on
manufacturing, i.e. Ontario, British Columbia, Manitoba
and most of the Atlantic Provinces, will keep benefiting
from strong U.S. demand and the weaker loonie. In contrast, the provinces that depend on natural resources, i.e.
Alberta, Saskatchewan and Newfoundland and Labrador,
will keep hurting as a result of the drop in energy prices.
•
The Federal Reserve (Fed) leaders kicked off monetary
firming at their December 16 meeting. However, the Fed
sent a clear signal that U.S. key rate increases would be
very gradual.
•
Oil prices and the loonie should stay very low in the
coming months, but could start to edge up in the second
half of 2016. The Bank of Canada will not contemplate
raising its key rates before 2017.
In Quebec, the long-awaited acceleration by economic
growth, which failed to materialize in 2015, with estimated growth of 1.3%, should start to emerge slowly as of
next year. Among other things, a solid performance by
exports and an upswing by business investment will provide support, as will infrastructure investments.
Oil prices should stay very low in the first half of 2016 then
start to rise gradually
Contents
US$/barrel
Highlights......................................................................... 1
120
Risks inherent in our scenarios........................................ 2
110
110
Financial forecasts........................................................... 3
100
100
90
90
80
80
Overseas...................................................................... 4
70
70
United States................................................................ 6
60
60
Canada......................................................................... 8
50
50
40
40
Economic forecasts
Quebec....................................................................... 10
US$/barrel
WTI* oil prices
Desjardins forecasts
30
Ontario and other provinces....................................... 12
2012
2013
2014
2015
2016
2017
120
30
2018
* West Texas Intermediate.
Sources: Datastream and Desjardins, Economic Studies
François Dupuis
Vice-President and Chief Economist
Hélène Bégin
Senior Economist
Mathieu D’Anjou
Senior Economist
Benoit P. Durocher
Senior Economist
514-281-2336 or 1 866 866-7000, ext. 2336
E-mail: [email protected]
Francis Généreux
Senior Economist
Jimmy Jean
Senior Economist Hendrix Vachon
Senior Economist
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 © 2015, Desjardins Group. All rights reserved.
December 2015
Economic and Financial Outlook
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Table 1
World gDP growth (adjusted for PPP*) and inflation rate
Weight** (%)
Country or zone
Real GDP growth (%)
Inflation rate (%)
2015f
2016f
2017f
2015f
2016f
2017f
advanced economies
United States
Canada
Quebec
Ontario
Japan
United Kingdom
Euro zone
Germany
France
Italy
Other countries
Australia
39.9
16.1
1.4
0.3
0.5
4.3
2.3
12.1
3.4
2.4
2.0
4.1
1.0
1.9
2.5
1.2
1.3
1.9
0.7
2.4
1.5
1.5
1.1
0.7
1.1
2.2
2.0
2.5
1.7
1.5
2.3
1.1
2.4
1.5
1.8
1.0
1.0
1.3
2.6
2.1
2.7
2.2
1.7
2.6
0.7
2.3
1.6
1.6
1.6
1.3
1.5
3.0
0.3
0.1
1.1
1.1
1.2
0.8
0.1
0.1
0.3
0.1
0.1
0.6
1.6
1.1
1.4
1.5
1.6
1.6
0.5
1.0
0.8
1.1
0.7
0.6
1.0
2.1
2.1
2.5
2.0
2.1
2.1
2.2
2.0
1.5
1.8
1.4
1.4
1.5
2.7
emerging and developing economies
North Asia
China
India
South Asia
Latin America
Mexico
Brazil
Eastern Europe
Russia
Other countries
South Africa
60.1
24.6
16.6
6.8
5.1
7.1
2.0
3.0
7.6
3.5
15.7
0.6
3.9
6.8
6.8
7.5
4.2
-0.6
2.3
-3.0
-0.9
-4.1
3.4
1.5
4.2
6.7
6.5
7.6
4.4
0.5
2.8
-1.6
1.5
-0.2
3.1
2.0
4.6
6.6
6.3
7.6
4.7
2.4
3.3
1.2
2.6
1.5
3.2
1.9
6.9
2.0
1.5
5.0
3.0
24.0
2.7
9.9
8.9
13.4
5.8
4.8
5.7
2.1
1.6
5.0
3.0
19.2
3.1
6.1
5.4
6.9
6.6
5.7
5.1
2.7
2.2
5.3
3.4
13.8
3.4
5.2
5.0
6.2
6.7
5.7
World
100.0
3.1
3.4
3.7
3.1
3.1
3.4
f: forecasts; * Purchasing power parities: Exchange rate that equates the costs of a broad basket of goods and services across countries; ** 2013.
Sources: World Bank, Consensus Forecasts and Desjardins, Economic Studies
Risks inherent in our scenarios
The weakness in the emerging economies, especially
China, remains a source of concern. A pullback or extended stagnation by Europe’s economy and persisting
geopolitical risks could also disrupt the global economy.
In the United States, consumer caution, negative impacts of the drop in oil sector investment and the strong
U.S. dollar could continue to be a drag on growth. Canada’s
economic troubles could intensify and last longer if oil
prices fall again or stabilize at a lower level than anticipated for a longer period. The upswing by exports could
also prematurely run out of steam and possibly trigger a
major slowdown by real GDP. The situation in the real
estate market also remains worrisome and households
are still carrying very heavy debt loads. In Quebec, the
slight acceleration by economic growth in 2016 and 2017
could be compromised by lacklustre exports and business
investment. The risk for the housing sector has notched
2
up, as condo prices have started to decline in several
locations. In the financial markets, investor confidence
remains shaky, given the major ongoing doubts about
the strength of the global economy, especially China’s,
and about the consequences of U.S. monetary firming.
Uncertainty about what the Federal Reserve will do next
could also fuel volatility. A continuing global oil surplus could take oil prices even lower, with major consequences for Canada’s financial markets.
December 2015
Economic and Financial Outlook
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Table 2
summary of the financial forecasts
2015
2016
2017
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
key interest rate
United States
Canada
Euro zone
United Kingdom
0.25
0.50
0.05
0.50
0.50
0.50
0.05
0.50
0.75
0.50
0.05
0.50
0.75
0.50
0.05
0.50
1.00
0.50
0.05
0.75
1.25
0.50
0.05
1.00
1.25
0.50
0.05
1.00
1.50
0.50
0.05
1.25
1.75
0.75
0.05
1.25
2.00
1.00
0.25
1.50
united states – Federal bonds
2-year
5-year
10-year
30-year
0.60
1.35
2.06
2.88
1.00
1.70
2.25
2.95
1.10
1.95
2.45
3.05
1.15
2.00
2.50
3.10
1.40
2.15
2.65
3.15
1.55
2.25
2.75
3.20
1.65
2.30
2.80
3.25
1.85
2.45
2.90
3.30
2.05
2.55
2.95
3.35
2.20
2.65
3.00
3.40
Canada – Federal bonds
2-year
5-year
10-year
30-year
0.52
0.80
1.43
2.20
0.50
0.75
1.45
2.15
0.60
1.00
1.65
2.25
0.65
1.15
1.70
2.35
0.80
1.30
1.85
2.40
0.90
1.40
1.95
2.45
1.00
1.50
2.05
2.55
1.20
1.65
2.15
2.60
1.40
1.80
2.25
2.70
1.60
1.95
2.35
2.80
Currency market
Canadian dollar (USD/CAD)
Canadian dollar (CAD/USD)
Euro (EUR/USD)
British pound (GBP/USD)
Yen (USD/JPY)
1.33
0.75
1.12
1.51
120
1.39
0.72
1.08
1.50
123
1.39
0.72
1.05
1.49
124
1.35
0.74
1.03
1.48
125
1.33
0.75
1.02
1.49
126
1.33
0.75
1.01
1.50
127
1.32
0.76
1.03
1.51
128
1.30
0.77
1.04
1.52
128
1.27
0.79
1.05
1.53
127
1.23
0.81
1.08
1.55
126
End of period in % (except if indicated)
stock markets* (level and growth)
United States (S&P 500)
Canada (S&P/TSX)
Commodities (annual average)
WTI** oil (US$/barrel)
Gold (US$/ounce)
2,025
13,200
Target: 2,150 (+6.2%)
Target: 13,850 (+4.9%)
Target: 2,275 (+5.8%)
Target: 14,800 (+6.9%)
49 (35*)
1,160 (1,070*)
46 (55*)
1,030 (1,000*)
62 (68*)
975 (950*)
f: forecasts; * End of year; ** West Texas Intermediate.
Sources: Datastream and Desjardins, Economic Studies
Financial forecasts
Prices for most commodities have retreated further in
recent weeks and WTI (West Texas Intermediate) oil
price is back near US$35 a barrel. Commodity currencies
and stock markets, including Canada’s, have therefore
been struggling again. Conversely, the euro rebounded
to around US$1.10 after the European Central Bank disappointed investors at the start of December.
in the second half of 2016. The Bank of Canada will not
contemplate raising its key rates before 2017. Additional
disappointment from the economy and another decline of
oil prices could even open the door to further monetary
easing in Canada in the first half of 2016. Nonetheless, a
long status quo is still the more likely scenario.
The U.S. job market’s solid performance finally convinced Federal Reserve (Fed) leaders to kick off monetary firming at their December 16 meeting. However, the
Fed sent a clear signal that U.S. key rate increases would
be very gradual. Following December’s 0.25% increase,
we therefore expect the federal funds rate to increase just
0.75% in 2016. The rise in bond yields promises to be
limited as a result. Oil prices and the loonie should stay
very low in the coming months, but could start to edge up
3
December 2015
Economic and Financial Outlook
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Overseas
Modest improvements anticipated in 2016 and 2017
Forecasts: Advanced economies will continue to grow in
the coming years, but growth will not accelerate sharply.
We expect gains of 1.9% in 2015, 2.0% in 2016 and 2.1%
in 2017. Euroland’s economy should expand 1.5% in 2015
and 2016, then 1.6% in 2017. The global economy should
get somewhat firmer support from emerging countries,
even though the Chinese economy will slow again.
Emerging economies should see their real GDP rise 4.2%
in 2016 and 4.6% in 2017, following slower growth of 3.9%
in 2015. We forecast global real GDP growth of 3.1%
in 2015, 3.4% in 2016, and 3.7% in 2017.
Graph 1 – The drop in demand from emerging countries is
increasingly steep
Ann. var. in %
Advanced economies
Growth slowed again in the third quarter of 2015 in
the euro zone. After a first-quarter increase of 2.2%
(annualized), real GDP slowed to 1.6% last spring,
then 1.2% this summer. However, consumption and, in
particular, public expenditures have picked up: the latter’s
2.4% quarterly annualized increase is the biggest since the
start of 2009 (graph 2). Investment was slightly negative but
we can hope for better growth to come, as the PMI indexes
have been trending up some months now. Euroland’s
manufacturing PMI even hit its highest point since the start
of 2014 (graph 3). Net exports made a negative contribution
to real GDP growth in the third quarter; the trade balance
is high, but is not managing to improve. The euro’s
forecast decline, which should take it close to parity with
the greenback in 2016, will help boost Europe’s exports.
Better performance by credit, particularly consumer
lending, suggests that consumption will once again support
growth. Of course, the impact of the Paris attacks and
fears of terrorism on consumer confidence has not yet
been determined, posing a risk to growth, particularly in
4
30
25
25
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
-20
2005
The volume of international trade is still stagnating, a
situation that has lasted all year; it is consistent with the
recent weakness in emerging economies. In September,
the volume of trade was -0.3% (annual), reflecting a 3.9%
increase in imports by advanced economies and a 6.2%
contraction by emerging economies (graph 1). Weak demand
from emerging nations is hurting more than Canada and the
United States: it is primarily hurting Germany, Australia,
Italy and Japan, as they export a greater share of their GDP.
The modest acceleration by emerging economies forecast
for the coming years should help global trade overcome its
sluggishness.
Ann. var. in %
Volume of imports
30
2006
2007
2009
2008
2010
Advanced nations
2011
2012
2013
2014
2015
2016
Emerging nations
Sources: CPB Netherlands Bureau for Economic Policy Analysis and Desjardins, Economic Studies
Graph 2 – Public spending’s contribution to Euroland’s real GDP
growth is rising
Government expenditures
in the euro zone
Quarterly ann. var. in %
4.5
Quarterly ann. var. in %
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
-0.5
-0.5
-1.0
2005
-1.0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Sources: Eurostat and Desjardins, Economic Studies
Graph 3 – Euroland’s PMI manufacturing index is starting to
trend up again
Index
Index
Euro zone – Manufacturing PMI
60
60
55
55
50
50
45
45
40
40
35
35
30
2007
2008
2009
2010
2011
Sources: Markit, Datastream and Desjardins, Economic Studies
2012
2013
2014
2015
30
2016
Economic and Financial Outlook
December 2015
France. For the overall euro zone, real GDP growth of 1.5%
is forecast for 2016, the same pace as 2015. A 1.6% rise is
expected for 2017.
www.desjardins.com/economics
Graph 4 – Japan avoids a technical recession
Quarterly ann. var. in %
Quarterly ann. var. in %
Real GDP
6
6
In the United Kingdom, real GDP should continue to post
quarterly growth between 2% and 3%, for annual growth
of 2.4% in 2016, as in 2015. A slight deceleration to 2.3%
is expected for 2017. A first rate hike from the Bank of
England is contemplated for the second half of 2016.
4
4
2
2
0
0
-2
-2
-4
-4
In the end, Japan’s economy managed to avoid a technical
recession. The second estimate of Q3’s national accounts
puts growth at 1.0%, rather than the -0.6% called for in the
first version. This follows last winter’s 0.5% contraction
(graph 4). A better performance from investment led to the
upward change. We expect further growth of about 1.0% for
the coming quarters. For 2015 as a whole, real GDP growth
should only be 0.7%, followed by a forecast increase of 1.1%
for 2016. The economy should get closer to potential in 2017.
-6
Emerging economies
China’s economy should keep decelerating, but slowly.
The drop in pace, triggered by structural factors (economic
reforms) and cyclical factors (pullback following the
overinvestment of recent years), is also being magnified by
the Chinese currency’s relative strength (graph 5). Slower
yuan appreciation should help Chinese exports firm up. We
expect China’s real GDP to rise 6.8% in 2015, then make
smaller gains of 6.5% in 2016 and 6.3% in 2017.
Among the other major emerging economies, India should
do well again, with real GDP growth beyond 7.5% in 2016
and 2017. Brazil and Russia should remain in recession in
early 2016 (graph 6), with growth likely returning in 2017,
particularly if commodity prices strengthen.
After revision
Before revision
-6
-8
-8
2012
2013
2014
2015
Sources: Cabinet Office and Desjardins, Economic Studies
Graph 5 – Some of the Chinese economy’s slowdown seems to be
triggered by the currency’s upswing
Ann. var. in % (inverted scale)
Ann. var. in %
-10
50
40
-5
30
0
20
5
10
10
0
-10
15
-20
20
-30
2000
2002
2004
2006
2008
Effective yuan (left, inverted scale)
2010
2012
2014
2016
Exports – 3-month moving average (right)
Sources: Bank for International Settlements, National Bureau of Statistics of China and Desjardins, Economic Studies
Graph 6 – Russia and Brazil remain in recession
Ann. var. in %
Ann. var. in %
Real GDP
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
Russia
Brazil
-6
-6
2010
2011
2012
2013
2014
2015
Sources: Federal State Statistics Service, Brazilian Institute of Geography and Statistics and Desjardins, Economic Studies
5
December 2015
Economic and Financial Outlook
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United States
Downgraded growth forecast for 2016
Forecasts: The U.S. economy slowed last summer and
should be less lively in the fourth quarter of 2015. This
situation did not keep the Federal Reserve (Fed) from
raising its key rates for the first time since 2006, but it is
clear that further monetary firming will be very gradual.
Manufacturing in particular is struggling to shake off its
sluggishness, a situation that could persist for some
of 2016. Real GDP should grow just 2.5% in 2015
and 2016. It should then expand 2.7% in 2017, when the
negative impacts of the dollar’s rise and tumble by oil
prices dissipate.
The advance estimate for Q3’s quarterly annualized
real GDP growth was 1.5%; the second estimate of the
national accounts puts it at 2.1%. This is still slower than the
3.9% jump recorded last spring. The latest indications on
business inventories and the production of services suggest,
however, that the third estimate will introduce a downside
change.
Another acceleration by hiring is among the recent
positive factors for the U.S. situation. The performance
for 2015 as a whole promises to be fairly good, with
2,308,000 jobs created in the first 11 months of the year,
509,000 of those in October and November. Although we
expect hiring to slow a little in 2016, the jobless rate should
handily drop below the 5% mark, which will reassure the
Fed as to gradual monetary firming. Note, however, the
U.S. economy is currently characterized by a divergence.
Only 43,000 jobs were created in goods sectors in the last
six months, while services added 1,232,000. The gap also
shows in the movements by the ISM indexes (graph 7).
The ISM manufacturing index fell to 48.6 in November, its
lowest point since June 2009. The non-manufacturing ISM
was higher, at 55.9. There is a plethora of problems in
manufacturing, but the main ones are weak demand from
emerging markets, the drop in oil sector investment, and
the strong greenback. The greenback is expected to keep
appreciating in the months to come, peaking at the end
of 2016. A weaker rise by the U.S. dollar and an eventual
lull should help manufacturing and net exports recover,
particularly in 2017 (graph 8).
Oil prices will stay low in 2016, but the negative impacts of
the drop in prices on business investment will dissipate by
next summer. On the positive side, the drop in oil prices is
taking gas prices down again—they recently hit a cyclical
6
Graph 7 – In the United States, the ISM manufacturing index is now
below 50, but the non-manufacturing index is holding up
Index
Index
ISM indexes
62
60
58
56
54
52
50
48
46
44
42
40
38
36
34
32
Manufacturing
Non-manufacturing
2004 2005 2006
2007 2008 2009
2010 2011 2012 2013
62
60
58
56
54
52
50
48
46
44
42
40
38
36
34
32
2014 2015 2016
Sources: Institute for Supply Management and Desjardins, Economic Studies
Graph 8 – The slowing and end of the greenback’s rise should help
U.S. manufacturing
Ann. var. in % (inverted scale)
Ann. var. in %
(25)
(20)
(15)
(10)
(5)
0
5
10
15
20
25
30
35
40
64
62
60
58
56
54
52
50
48
46
44
42
40
38
36
Desjardins
forecasts
2000
2002
2004
2006
2008
2010
Effective U.S. dollar (left, inverted scale)
2012
2014
2016
2018
Manufacturing ISM exports (right)
Sources: Federal Reserve Board, Institute for Supply Management and Desjardins, Economic Studies
Graph 9 – U.S. gas prices have kept falling, hitting
a new cyclical low
US¢/gallon
US¢/gallon
National average for gas prices
400
400
350
350
300
300
250
250
200
200
150
2008
2009
2010
2011
2012
2013
Sources: Energy Information Administration and Desjardins, Economic Studies
2014
2015
150
2016
December 2015
Economic and Financial Outlook
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low (graph 9 on page 6). For now, this situation has not
made the confidence indexes rebound. They are still lower
than they were at the start of 2015, and household sentiment
seems to be affected by security concerns. We still expect
consumption growth to remain good throughout 2016, even
though the strong advance by motor vehicle sales should
ease.
For residential investment, the market should be able
to absorb the additional rate increases to be ordered by
the Fed, especially if they go up very slowly, as forecast.
Housing starts will therefore continue to trend upwards
slightly in 2016 and 2017 (graph 10), combined with fairly
strong volatility, as in recent years.
Graph 10 – Despite the key rate increase, housing starts should
keep rising in the United States
In thousands
In thousands
Annualized housing starts
2,400
2,400
Desjardins
forecasts
2,200
2,200
2,000
2,000
1,800
1,800
1,600
1,600
1,400
1,400
1,200
1,200
1,000
1,000
800
800
600
600
400
400
2003
2005
2007
2009
2011
2013
2015
2017
Sources: U.S. Census Bureau and Desjardins, Economic Studies
For government expenditures, public spending will have
contributed to growth in 2015 for the first time since 2010,
thanks to an acceleration by states and local administrations.
The agreement concluded this fall between Congress and
the White House suggests that federal spending will record
a first increase in 2016 and another in 2017, after five years
of negative contributions to growth.
Table 3
united states: major economic indicators
2015
2016
Annual average
Quarterly annualized
variation in % (except if indicated)
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
2014
2015p
2015f
2016f
Real gross domestic product*
Personal cons. expenditures
Residential construction
Business fixed investment
Inventory change ($B)
Public expenditures
Exports
Imports
Final domestic demand
2.1
3.0
7.3
2.4
90.2
1.7
0.9
2.1
2.9
1.6
2.0
7.0
3.6
70.0
1.8
0.5
2.0
2.3
2.9
3.5
-0.2
3.8
70.0
1.9
1.0
2.5
3.1
2.7
2.8
1.3
6.3
70.0
2.0
1.0
3.5
3.1
2.5
2.3
2.3
7.1
70.0
2.4
2.0
4.5
3.0
2.8
2.8
1.7
7.3
70.0
1.3
2.5
4.0
3.1
2.4
2.7
1.8
6.2
68.0
-0.6
3.4
3.8
2.5
2.5
3.1
8.6
3.2
96.6
0.8
1.3
5.1
2.9
2.5
2.8
3.3
4.7
70.0
2.0
1.4
2.9
2.9
2.7
2.5
1.7
6.4
70.0
1.6
2.8
3.4
2.9
Other indicators
Nominal gross domestic product
Real disposable personal income
Employment (establishments)
Unemployment rate (%)
Housing starts (1)
Corporate profits** (2)
Personal saving rate (%)
Total inflation rate (2)
Core inflation rate*** (2)
Current account balance ($B)
3.4
3.9
1.8
5.2
1,158
-4.7
5.2
0.1
1.8
-496.5
2.5
3.0
1.8
5.0
1,153
-2.0
5.5
0.4
2.0
-506.8
5.0
3.0
1.5
5.0
1,167
4.0
5.4
1.4
2.0
-517.8
4.0
2.5
1.5
4.9
1,183
2.0
5.4
1.0
1.7
-535.5
4.1
2.0
1.4
4.8
1,205
4.5
5.3
1.2
1.7
-554.9
4.7
1.5
1.6
4.7
1,213
5.0
5.1
2.0
1.6
-568.7
4.1
2.7
1.9
6.2
1,001
1.7
4.8
1.6
1.7
-389.5
3.5
3.6
2.1
5.3
1,112
-0.5
5.2
0.1
1.8
-480.2
4.1
2.8
1.6
4.9
1,192
3.9
5.3
1.4
1.8
-544.2
4.6
2.2
1.4
4.6
1,256
6.0
5.1
2.5
1.9
-558.8
f: forecasts; * 2009 US$; ** Before taxes; *** Excluding food and energy; (1) Thousands of units on an annualized basis; (2) Annual change.
Sources: Datastream and Desjardins, Economic Studies
7
December 2015
Economic and Financial Outlook
www.desjardins.com/economics
Canada
Heading for a disappointing year-end
Forecasts: Economic growth will be relatively soft in 2015
thanks to a technical recession in the first half and a
disappointing year-end. Real GDP is only forecast to rise
1.2%. The economy is then expected to pick up, once
the adverse impacts of the drop in energy prices wane
and spinoffs from the rise in some investments make
themselves felt. 2016 could end with growth of 1.7%, while
growth of 2.2% is forecast for 2017.
After contracting for two straight quarters, real GDP
returned to positive territory in the third quarter, advancing
2.3% (quarterly annualized). The rise is mainly due to a
major contribution from international trade. Domestic
demand was almost flat, as the advance by consumer
spending was offset by another drop in investment. Among
other things, non-residential investment fell 5.8% due to the
negative effects of the drop in energy prices.
Despite last summer’s improvement, growth promises to be
disappointing for the fourth quarter. The weakness in oil
prices worsened at the end of 2015 in international markets,
taking the price for Canadian oil (based on Western Canada
Select) under the US$25/barrel mark (graph 11). Under these
conditions, we can expect the drop in business energy sector
investment to persist for several more quarters. What’s
more, the pullback by prices is taking a growing bite from
the profitability of energy sector businesses. Operations
in that industry generated a $1B loss in the third quarter.
Year-to-date, the losses are $2.4B (graph 12). Because of the
heavy fixed costs, the erosion of profitability has not had too
big an impact on the volume of oil and natural gas produced,
so far. If prices stay this low, however, the volume of output
by the energy sector could, sooner or later, slow.
The fourth quarter will also be hurt by a negative base
effect from September’s 0.5% drop in real GDP by industry
(graph 13). Although a rebound is likely in October, it
will be hard for Q4’s economic growth to get above 1%.
Among other things, merchandise exports have started to
lose ground again, dropping a total of 6.3% between July
and October, pointing to a negative contribution from
international trade in Q4. Despite this, the trend for exports
remains positive thanks to the low Canadian dollar and
strong U.S. demand (graph 14 on page 9).
Graph 11 – Canadian oil prices remain very low
US$/barrel
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
2010
20
2016
2015
2014
2013
2012
2011
* Western Canada Select.
Sources: Bloomberg and Desjardins, Economic Studies
Graph 12 – The oil and natural gas sector has been producing
at a loss for several quarters in Canada
Operating profits of the oil and natural gas extraction sector
and support activities
In $B
14
In $B
14
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
1990
-2
1993
1996
1999
2002
2005
2008
2011
2014
Sources: Statistics Canada and Desjardins, Economic Studies
Graph 13 – A -0.9% carryover for the fourth quarter in Canada
In 2007 $B
In 2007 $B
Real GDP by industry
1,660
1,660
Quarterly average
1,650
1,650
1,640
1,640
1,630
1,630
1,620
1,620
1,610
1,610
1,600
1,600
1,590
1,590
1,580
1,580
1,570
1,570
Jan.
2013
April
July
Oct.
Jan.
2014
April
Sources: Statistics Canada and Desjardins, Economic Studies
8
US$/barrel
WCS* crude oil prices
100
July
Oct.
Jan.
2015
April
July
December 2015
Economic and Financial Outlook
The growth outlook is better for 2016. For one thing,
the negative impacts of the drop in energy prices should
gradually dissipate. For another, the new Canadian
government will, in its first budget, introduce a substantial
increase in public investment. This should help economic
growth pick up speed in Canada, particularly as of mid‑2016.
Moreover, the decrease to the tax burden on middle-class
families will likely make consumer spending edge up.
Non-residential investment is also forecast to strengthen
in 2016, as some non-energy sector businesses will invest to
increase their output capacity. All in all, domestic demand
could start to make a substantial contribution to economic
growth in 2016, following several lethargic quarters.
www.desjardins.com/economics
Graph 14 – Exports should keep trending up in Canada
2002 = 100
2002 = 100
Volume of Canadian goods and services
exports (left)
Foreign activity index compiled by the
Bank of Canada (right)
125
120
142
132
115
122
110
105
112
100
102
95
Desjardins forecasts
90
2010
2011
2012
2013
2014
2015
2016
2017
2018
Sources: Statistics Canada, Bank of Canada and Desjardins, Economic Studies
Table 4
Canada: major economic indicators
2015
2016
Annual average
Quarterly annualized
variation in % (except if indicated)
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
2014
2015f
2016f
2017f
Real gross domestic product*
Final consumption expenditure [of which:]
2.3
0.8
0.7
1.4
1.9
1.8
2.0
1.8
2.4
1.9
2.6
1.6
2.5
1.9
1.2
1.7
1.7
1.6
2.2
1.9
Household consumption expenditure
1.8
1.6
1.9
1.8
1.8
1.6
2.6
1.9
1.8
2.0
Governments consumption expenditure
-1.6
1.0
1.5
1.7
2.0
1.7
0.3
1.0
1.1
1.7
-2.8
-2.7
-1.2
-0.7
2.4
6.1
0.7
-2.7
-1.0
2.6
Residential structures
2.5
-1.5
-1.5
-1.1
-0.7
-0.4
2.5
3.5
-0.7
-0.2
Non-residential structures
-6.5
-5.0
-2.5
-1.5
0.0
3.0
-0.4
-10.0
-3.1
3.1
Machinery and equipment
-4.5
-3.5
-1.5
-0.5
1.0
3.0
1.0
-1.8
-2.4
3.3
Intellectual property products
-8.1
-4.0
1.0
-0.5
0.0
0.5
-4.2
-11.4
-2.4
0.9
Governments gross fixed capital formation
-2.2
1.0
1.0
1.5
15.0
30.0
2.1
3.3
4.0
6.5
0.7
9.4
-2.9
0.0
1.0
-2.5
-3.0
0.4
1.0
4.0
1.5
1.1
2.3
3.0
1.5
1.2
1.8
3.7
1.8
2.0
1.5
3.5
3.5
2.7
9.9
5.3
1.8
1.6
5.0
3.0
0.4
0.6
1.6
3.0
0.0
1.0
0.6
3.6
2.8
2.1
2.7
0.8
0.8
7.0
213
-19.2
4.2
1.2
2.2
-16.2
1.7
2.0
0.8
7.0
202
-15.0
4.3
1.4
2.0
-15.5
3.4
2.5
0.6
7.0
192
-2.0
4.4
1.6
1.8
-13.0
4.0
2.2
1.0
7.0
187
-2.0
4.5
1.4
1.7
-12.0
4.4
2.2
1.3
7.0
183
5.0
4.6
1.3
1.7
-11.0
5.1
2.0
1.1
6.9
181
7.0
4.7
1.6
2.0
-10.0
4.3
1.1
0.6
6.9
189
7.0
4.2
2.0
1.8
-44.9
0.9
2.4
0.8
6.9
196
-15.9
4.6
1.1
2.2
-67.4
3.2
2.1
0.9
7.0
186
2.0
4.6
1.5
1.8
-46.0
4.5
2.3
1.0
6.8
178
12.6
4.8
2.0
2.0
-38.0
Gross fixed capital formation [of which:]
Investment in inventories (2007 $B)
Exports
Imports
Final domestic demand
Other indicators
Nominal gross domestic product
Real disposable personal income
Employment
Unemployment rate (%)
Housing starts (1)
Corporate profits** (2)
Personal saving rate (%)
Total inflation rate (2)
Core inflation rate*** (2)
Current account balance ($B)
f: forecasts; * 2007 $; ** Before taxes; *** Excluding the eight most volatile; (1) Thousands of units on an annualized basis; (2) Annual change.
Sources: Datastream and Desjardins, Economic Studies
9
92
December 2015
Economic and Financial Outlook
www.desjardins.com/economics
Quebec
The economy is struggling to accelerate
Forecasts: The long-awaited acceleration by economic
growth, which failed to materialize in 2015, with estimated
growth of 1.3%, should start to emerge slowly as of next
year. Real GDP growth should hit 1.5% in 2016 and 1.7%
the year after that. A solid performance by exports and
upswing by business investment will provide support,
as will infrastructure investments. Consumers’ delicate
financial situation will keep a curb on their spending.
Growth by international exports lost steam in 2015. Although
at a peak that dates back to 2001, the recent period has been
characterized by some hesitation (graph 15). Shipments to
Asia and Europe have dropped due to economic difficulties,
while shipments to the United States continue to surge. As
the spinoffs from stronger U.S. demand and the loonie’s
slide will gradually wane, growth by Quebec’s international
exports will stand still for the next two years. Exports to
the rest of Canada, which have been falling in the last two
years, should improve as of 2016.
A lot of hope is focused on government investment to
fuel faster economic growth. The federal government’s
additional infrastructure investments (graph 16) will boost
economic activity a little as of 2016. As for business, the
Canadian Federation of Independent Business confidence
indicator is still flagging. It will have to improve for business
investment to gradually recover.
The tax measures announced by the federal government
will be good for middle-class families. Overall, Canadians
will end up with an extra $1.2B in their pockets, some of
that in Quebec, which will finally give households a little
energy. We cannot expect a much stronger contribution
from consumers in 2016 and 2017. Their financial situation
remains shaky and they have little leeway in the event of the
unexpected. Personal bankruptcies have tended to climb in
the last few months, while retail sales have been struggling
to grow recently (graph 17).
However, some numbers have been more favourable for
consumers. The confidence index is close to its historic
average again, job creation was fairly good in 2015, and
income after taxes and inflation has accelerated a little.
The labour market should continue to improve, adding an
average of 35,000 jobs in 2016 and 25,000 the following
Graph 15 – Quebec’s international exports crest at a high
Ann. var. in %
In 2007 $B
20
6.4
15
6.2
10
6.0
5
5.8
0
5.6
-5
5.4
-10
5.2
-15
5.0
-20
4.8
2000
2002
2004
2006
Change* (left)
2010
2012
2014
2016
Level* (right)
* 8-month moving averages.
Sources: Institut de la statistique du Québec and Desjardins, Economic Studies
Graph 16 – Public expenditures by the three tiers of government*
in Quebec
In $B
In $B
20
20
Desjardins estimate
with the federal government’s latest
infrastructure commitments
19
19
18
18
17
17
16
16
15
15
14
14
2009
2008
2010
2011
2012
2013
2015f
2014
2016f
f: forecasts; * Federal, provincial and municipal.
Sources: Institut de la statistique du Québec, ministère des Finances du Québec, Statistics Canada
and Desjardins, Economic Studies
Graph 17 – 2015 was a fairly tough year for Quebec retail sales
Ann. var. in %
Ann. var. in %
Retail sales – In real terms
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
2008
2009
2010
2011
Sources: Statistics Canada and Desjardins, Economic Studies
10
2008
2012
2013
2014
2015
December 2015
Economic and Financial Outlook
www.desjardins.com/economics
year. At 7.5% in November, the unemployment rate will
slowly drop close to 7.0% in 2017.
The housing sector is making some progress. Existing home
sales are poised to see their first increase in five years. The
number of homes on the market remains higher than demand,
so annual price growth is still around 1.5%. The context is
tougher for the condo market, which remains in surplus.
Prices have started to edge back in many agglomerations
(graph 18) and new construction is pulling back.1 It will take
one or two years before we see healthier conditions in the
condo market. This adjustment will persist, so no upswing
in total housing starts is forecast for the next two years.
Graph 18 – Condo resale market: prices are down in several
Quebec CMAs*
Ann. var. in %
Ann. var. in %
Q3 2015
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
-10
Median price
-10
Average price
-12
-12
Montreal
Quebec
Gatineau
Sherbrooke
Saguenay
Trois-Rivières
* Census metropolitan area.
Sources: Quebec Federation of Real Estate Boards, Centris® system and Desjardins, Economic Studies
Desjardins, Economic Studies, Economic Viewpoint, “Quebec’s condo
market is still in surplus,” December 10, 2015, www.desjardins.com/
ressources/pdf/pv151210e.pdf?resVer=1449758316000.
1
Table 5
Quebec: major economic indicators
2013
2014
2015f
2016f
2017f
1.2
1.5
1.5
1.0
1.3
1.0
1.5
1.1
1.7
1.5
Household consumption expenditure
1.8
1.5
1.5
1.6
1.8
Governments consumption expenditure
0.8
0.2
-0.7
0.2
1.0
-5.5
-4.8
0.1
1.8
3.3
Annual average in % (except if indicated)
Real gross domestic product*
Final consumption expenditure [of which:]
Gross fixed capital formation [of which:]
Residential structures
-4.7
-0.1
-0.6
0.5
1.0
Non-residential structures
-0.2
-14.3
-2.5
1.8
3.9
Machinery and equipment
-17.4
-10.7
0.5
2.1
3.7
Intellectual property products
-5.5
-4.5
-1.5
-2.6
-1.3
Governments gross fixed capital formation
-3.7
0.6
1.5
5.3
7.7
2,048
0.8
-1.3
0.0
1,127
4.5
0.3
-0.2
2,000
2.4
0.8
0.8
1,800
2.9
2.3
1.3
2,400
3.4
3.1
1.9
2.0
1.3
1.3
1.4
7.6
4.4
2.5
37.8
0.7
2.5
1.5
2.1
0.0
7.7
4.0
1.7
38.8
1.4
2.3
2.3
2.3
1.0
7.6
3.5
0.8
36.0
1.1
3.2
3.0
2.0
0.9
7.3
3.3
2.5
36.0
1.6
3.8
3.2
2.1
0.6
7.2
3.0
3.0
36.5
2.1
Investment in inventories (2007 $M)
Exports
Imports
Final domestic demand
Other indicators
Nominal gross domestic product
Real disposable personal income
Weekly earnings
Employment
Unemployment rate (%)
Personal saving rate (%)
Retail sales
Housing starts (1)
Total inflation rate
f: forecasts; * 2007 $; (1) Thousands of units on an annualized basis.
Sources: Statistics Canada, Institut de la statistique du Québec, Canada Mortgage and Housing Corporation and Desjardins, Economic Studies
11
December 2015
Economic and Financial Outlook
www.desjardins.com/economics
Ontario and other provinces
Oil-producing provinces still lagging
Forecasts: There are still major regional disparities
between the Canadian provinces’ economic outlooks.
Provinces that are more focused on manufacturing will
keep benefiting from strong U.S. demand and the weaker
loonie. Ontario, British Columbia, Manitoba and most
of the Atlantic Provinces should therefore see growth
that beats the national average in the coming years. In
contrast, the provinces that depend on natural resources
will keep hurting as a result of the drop in energy prices.
Alberta, Saskatchewan and Newfoundland and Labrador
will thus continue to struggle in 2016 and 2017.
Graph 19 – Homebuilding remains lively in Ontario
In thousands
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
2010
2012
2011
2013
2014
Multi-unit housing
Ontario
According to the latest numbers from Ontario’s Ministry of
Finance, the province’s quarterly real GDP growth remained
in positive territory last winter and spring. These results
contrast sharply with the results for Canada as a whole,
where production edged down. The drop in energy prices
clearly did not hurt Ontario as much as the other parts of
the country. However, the province did feel some adverse
effects through the drop in business investment.
The province’s outlook remains good for 2016 and 2017.
The weak Canadian dollar and lively U.S. demand continue
to create good conditions in Ontario’s manufacturing
sector. Also, North America’s automotive industry recently
strengthened after a few tougher months. Like the other
provinces, Ontario should also benefit from an acceleration
by federal government infrastructure investment as of
mid‑2016. However, the housing market should slow a
little in 2016 and 2017. At 87,400 units in November 2015,
housing starts remain above the province’s annual household
formation level (graph 19). The coming years are therefore
expected to see slower growth, especially for condos. All in
all, Ontario’s economic growth should continue to beat the
national average in the quarters to come.
In thousands
Number of housing starts
100
2015
Other
Sources: Canada Mortgage and Housing Corporation and Desjardins, Economic Studies
Graph 20 – Alberta’s unemployment rate is nearly
at the national average
In %
In %
Unemployment rate
14
14
Canada
12
Alberta
12
10
10
8
8
6
6
4
4
2
2
0
0
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: Statistics Canada and Desjardins, Economic Studies
Graph 21 – Oil production is plunging in Newfoundland
and Labrador
Millions of barrels/month
Millions of barrels/month
Oil output
8
8
7
7
6
6
5
5
4
4
3
3
2
2
Jan.
2014
April
July
Oct.
Jan.
2015
April
Sources: Canada-Newfoundland Offshore Petroleum Board and Desjardins, Economic Studies
12
July
Oct.
December 2015
Economic and Financial Outlook
www.desjardins.com/economics
Western provinces
The ongoing very low energy prices are bad news for the
economies of Alberta and Saskatchewan. The drop in
energy sector investment was particularly steep there, and
it looks like these provinces were in recession in 2015.
Alberta’s unemployment rate climbed to 7.0% in November,
up sharply from where it was at this time last year, i.e.
4.4%. For the first time since the end of the 1980s, Alberta’s
unemployment rate has closed in on the national average,
which was 7.1% in November (graph 20). It is clear that
the adjustments underway in Alberta and Saskatchewan
will continue for some time. Thus, the economic growth
outlooks for 2016 and 2017 are quite low.
After a tough 2014, Manitoba’s cereal production started
to rise again in 2015, up 14.6% (graph 21). This will add
to the manufacturing sector’s improvement, allowing the
province to post real GDP growth just above the national
average from 2015 to 2017.
British Columbia will continue to capitalize on its trade
with Asia, even though growth has slowed somewhat
in that part of the world. Container traffic at the Port of
Vancouver is up 5% for the first 10 months of 2015. The
province is also benefiting from improved homebuilding
in the United States, resulting in stronger demand for
British Columbia’s forest products.
Atlantic provinces
Newfoundland and Labrador is heavily dependent on the
energy industry, so it’s real GDP will likely keep contracting
in 2015 and 2016. Among other things, oil output is down
nearly 20% over the first nine months of 2015 (graph 22).
However, energy prices are expected to rise gradually in
the coming quarters; this should allow economic conditions
to improve in 2017. As for the Maritimes, improved
manufacturing should allow real GDP to accelerate in the
coming years.
Table 6
Ontario: major economic indicators
2013
2014
2015f
2016f
2017f
1.3
1.4
2.7
2.1
1.9
2.1
2.3
1.6
2.6
1.9
Household consumption expenditure
2.0
2.5
2.7
2.0
2.1
Governments consumption expenditure
0.0
0.7
0.6
0.6
1.5
-7.2
1.4
1.8
0.8
3.3
Residential structures
-1.7
0.4
4.0
-1.0
-0.5
Non-residential structures
-5.6
1.6
4.0
0.5
5.0
Machinery and equipment
-22.2
6.9
-3.0
0.5
5.5
Intellectual property products
-4.7
-2.8
-3.0
0.3
3.0
Governments gross fixed capital formation
-7.7
1.4
1.5
4.5
6.0
2,984
2.0
-1.0
-0.3
4,900
1.9
1.1
1.9
4,500
2.0
2.2
2.0
3,000
3.6
1.5
1.5
2,500
4.0
3.0
2.2
1.9
1.4
1.6
1.8
7.6
3.9
2.3
61.1
1.0
4.1
0.9
2.0
0.8
7.3
2.2
5.0
59.1
2.4
2.7
3.0
2.6
0.6
6.8
2.8
4.3
70.9
1.2
4.5
2.1
2.2
1.0
6.8
3.0
4.7
68.7
1.6
4.6
2.2
2.3
1.1
6.7
4.5
4.9
62.3
2.1
Annual average in % (except if indicated)
Real gross domestic product*
Final consumption expenditure [of which:]
Gross fixed capital formation [of which:]
Investment in inventories (2007 $M)
Exports
Imports
Final domestic demand
Other indicators
Nominal gross domestic product
Real disposable personal income
Weekly earnings
Employment
Unemployment rate (%)
Personal saving rate (%)
Retail sales
Housing starts (1)
Total inflation rate (2)
f: forecasts; * 2007 $; (1) Thousands of units on an annualized basis; (2) Annual change.
Sources: Statistics Canada, Ontario's Ministry of Finance, Canada Mortgage and Housing Corporation and Desjardins, Economic Studies
13
December 2015
Economic and Financial Outlook
www.desjardins.com/economics
Table 7
Canada: major economic indicators by provinces
2013
2014
2015f
2016f
2017f
Real gDP growth – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
2.2
1.9
1.2
1.3
2.4
5.8
5.1
2.1
2.5
-0.4
1.5
2.7
2.3
1.9
4.8
3.2
1.2
0.6
1.3
1.9
1.7
0.0
-1.0
2.0
1.7
1.1
1.5
2.3
2.1
0.5
0.3
2.3
2.2
1.9
1.7
2.6
2.5
1.7
1.6
2.7
Total inflation rate – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
0.9
1.2
0.7
1.0
2.2
1.5
1.4
-0.1
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
1.2
1.0
1.5
1.4
1.6
1.6
1.5
1.3
1.2
1.7
2.0
1.9
2.1
2.1
1.9
1.6
1.5
2.0
employment growth – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
1.5
-0.1
1.4
1.8
0.7
3.1
2.5
0.1
0.6
-0.9
0.0
0.8
0.1
1.0
2.2
0.6
0.8
-0.4
1.0
0.6
1.5
0.5
1.2
1.2
0.9
0.6
0.9
1.0
0.8
0.0
0.0
1.5
1.0
0.8
0.6
1.1
1.0
0.8
0.8
1.3
unemployment rate – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
7.1
10.2
7.6
7.6
5.4
4.1
4.6
6.6
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
6.1
7.0
10.0
7.3
6.8
5.8
5.7
7.1
6.0
6.8
9.5
7.2
6.7
5.5
5.5
6.8
5.9
Retail sales growth – Canada
Atlantic
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
3.2
2.6
2.5
2.3
3.9
5.1
6.9
2.4
4.6
3.1
1.7
5.0
4.3
4.6
7.5
5.6
2.2
1.3
0.8
4.3
1.5
-2.8
-3.5
6.8
3.6
2.8
2.5
4.7
3.5
1.5
1.0
5.5
4.0
3.3
3.0
4.9
3.8
2.0
1.8
6.0
187.9
10.3
37.8
61.1
7.5
8.3
36.0
27.1
189.3
8.0
38.8
59.1
6.2
8.3
40.6
28.4
195.6
8.5
36.0
70.9
5.6
5.4
38.6
30.6
185.6
8.4
36.0
68.7
5.0
5.0
35.0
27.5
177.5
9.1
36.5
62.3
5.6
5.5
32.5
26.0
Annual average in % (except if indicated)
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
14