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MAY 4, 2016
N AV I G AT I N G T H R O U G H T U R B U L E N T
ECONOMIC TIMES
P R E S E NTE D TO
P W C G L O B A L F O R E S T, P A P E R & P A C K A G I N G I N D U S T R Y C O N F E R E N C E
KEN PEACOCK,
Chief Economist and Vice President
2
A N I N A U S P I C I O U S S TA R T T O T H E Y E A R
•
Global economic forecasts are revised down, again
•
Five central banks have set‘ negative’ policy rates (ECB, Japan, Denmark, Sweden and Switzerland)
•
Bond yields hover near all-time lows in many advanced economies…with ~US$6 trillion in sovereign
debt currently trading at negative nominal yields!
•
Canadian 10-year government bond yields hit an all-time low (1.2% in January)
•
The Canadian dollar slips below US70 cents, fed by oil prices falling below US$30/bbl for the first
time since 2003, before rebounding to ~US78 cents as oil markets firm
•
China’s equity market struggles, capital outflows accelerate, and doubts grow about whether the
country can avoid a ‘hard landing’
•
Choppy economic data sparks concern about US economic expansion
3
G L O B A L E C O N O M Y L O S T M O M E N T U M P O S T- 2 0 1 0
8
World growth outlook, real GDP % change
World
7
Advanced Economies
6
Emerging Economies
5
4
3
2
1
0
2010
2011
2012
2013
2014
2015
2016
2017
Source: IMF World Economic Outlook, April 2016 and Historical Database.
4
RISKS STEMMING FROM A PROLONGED PERIOD
O F R E C O R D L O W I N T E R E S T R AT E S
•
“Globally, interest rates have been extraordinarily low for an exceptionally long time, in
nominal and inflation-adjusted terms, against any [known] benchmark…”
•
“[S]uch low rates are a symptom of a broader malaise in the global economy…which has
proved exceedingly difficult to understand.”
•
Problematic impacts of a multi-year period of unusually low interest rates and borrowing costs
include…ongoing debt accumulation, inflated asset values, misallocation of capital, punitive
treatment of savers, malfunctioning banking/financial systems (in some countries),
and challenges to the basic business models of the pension and life insurance industries
Source: Bank for International Settlements, 85th Annual Report, 2015.
5
US DOLLAR PRICES FOR SELECTED COMMODITY PRICES
(ANNUAL AVERAGE)
2013
2015
2016
2017
Oil (bbl)
$104
$51
$37
$48
Natural gas (US, mmbtu)
$3.73
$2.61
$2.50
$3.00
Iron ore (mt)
$135.4
$55.8
$42.0
$44.1
Aluminum (mt)
$1,847
$1,665
$1,550
$1,612
Copper (mt)
$7,332
$5,510
$5,000
$5,190
Nickel (mt)
$15,032
$11,863
$10,000
$10,801
Wheat (mt)
$312
$203
$185
$193
Phosphate (mt)
$148
$117
$120
$119
bbl = barrel; mmbtu = one million British thermal units; mt = metric ton.
Source: World Bank, Commodity Market Outlook, January 2016.
6
C H I N A’ S C E N T R A L R O L E I N W O R L D C O M M E R C E
Source: OEC via BBC News (http://www.bbc.com/news/uk-34052618).
7
PRODUCTIVITY SLOWDOWN ACROSS THE OECD
Annual productivity growth, %
2.0
1.6
Avg 2004-07
1.6
1.5
1.7
Avg 2010-14
1.35
1.18
1.0
0.9
0.9
0.85
0.7
0.5
0.3
0.0
US
Canada
EZ
UK
OECD Total
Source: OECD, CIBC World Markets.
8
US EMPLOYMENT SURGES
US non-farm payrolls, millions
144
US payrolls increased by 2.9
million jobs in 2015, second
largest gain since 1999
142
140
138
136
134
132
130
128
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
Latest: March 2016
Source: US Bureau of Economic Analysis.
9
H O U S I N G S TA R T S C O N T I N U E T O G R I N D H I G H E R
1500
US housing starts, SA, thousands
1300
1100
900
700
500
300
07
08
09
10
11
12
13
14
15
16
Latest: February 2016
Source: US Census Bureau, seasonally adjusted data.
10
GROWTH IN US HOUSEHOLDS: HISTORY AND OUTLOOK
(AVERAGE ANNUAL INCREASE IN NUM BER OF HOUSEHOLDS, OVER THE PERIOD SHOW N)
History
2004-2007
1,216,859
2007-2010
802,066
2010-2013
965,918
Forecasts for 2015-2025
Low estimate
1,160,000
Middle estimate
1,240,000
High estimate
1,320,000
Source: Harvard University Center for Housing Studies, Working Paper 15-5; projections from the US Population Survey Annual Social and Economic Supplement.
11
STEADY GROWTH FOR US ECONOMY
4
US real GDP growth, %
3
2
1
0
-1
-2
-3
-4
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16*
* Forecast.
Source: FRED, TD Economics.
17*
12
CANADIAN BOND YIELDS PLUMB THE DEPTHS
18
16
14
12
10
8
6
4
2
0
10-year gov’t of Canada bond yields, %
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
Latest: March 2016
Source: Statistics Canada.
13
A BUMPY RIDE FOR THE CANADIAN DOLLAR
1.10
US$ per Cdn$, monthly averages with quarterly forecasts
history
1.05
Scotiabank
1.00
RBC
0.95
CIBC
0.90
40-yr average
0.85
0.80
OECD PPP estimate
0.75
0.70
0.65
04
05
06
07
08
09
10
11
12
13
14
15
16
17
Latest: March 2016
Source: Bank of Canada, noon rate.
FAC T O R S S H AP I N G C AN A D A’ S N E AR - T E R M
ECONOMIC PERFORMANCE IN 2016-17
Negative impact
•
Largely tapped out and increasingly indebted consumers – pointing to weaker growth in consumer
spending going forward
•
Anticipated slowdown in housing-related investment
•
Weak/declining overall business capital spending, driven by energy/materials sectors
•
Sluggish commodity markets (natural resources = ~50% of Canada’s merchandise exports)
Positive impact
•
Federal government economic stimulus
•
Moderate US economic expansion
•
Gains in non-energy exports
•
Continued rock-bottom interest rates and a relatively low Canadian dollar
14
15
CANADIAN HOUSEHOLD FINANCES (Q4, 2015)
Household debt as % of disposable income
163%
Mortgage debt as % of disposable income
101%
Consumer credit/loans as % of disposable income
53%
Assets as % of disposable income
921%
Residential real estate as % of household assets
41%
Net worth as % of disposable income
762%
House price to income ratio, 2000
4.5
House price to income ratio, 2015
7.6
BC house price to income ratio, 2015
11.6
Source: RBC Economics and TD Economics.
16
BETTER GROWTH PROSPECTS FOR CANADA IN 2016
4
Canada real GDP growth, %
3
2
1
0
-1
-2
-3
-4
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16*
17*
* Forecast.
Source: Statistics Canada, TD Economics.
17
US DRIVING EXPORT GROWTH
1900
BC int. merchandise exports, millions $
Export growth 2015 by country, % chng
India
1700
1500
US
1300
Japan
1100
China
US
rest of world
900
South Korea
700
10
11
12
13
Latest: February 2016
Source: BC Stats.
14
15
16
-15
-10
-5
0
5
10
18
BC JOB MARKET PICKS UP
2380
BC Employment, SA, thousands
2360
employment
trend
2340
2320
2300
2280
2260
2240
2220
2200
2010
2011
2012
2013
2014
2015
2016
Latest: March 2016
Source: Statistics Canada, LFS.
19
B U T … J O B G R O W T H C O N C E N T R AT E D I N T H E L O W E R M A I N L A N D
115
Employment, indexed Jan 2010=100
12
10
lower mainland
rest of BC
110
Unemployment rate by region, %
Mar-15
Mar-16
8
6
105
4
100
2
0
95
10
11
12
13
14
15
16
Van Lower Thom. Koot- Cariboo NC / NorthIsland Main. Ok enay
Nechako east
Latest: March 2016
Source: Statistics Canada, LFS.
20
BC CONSUMERS ARE SPENDING
15
Retail sales growth, y/y % change
10
5
0
BC
-5
Alberta
-10
10
11
12
13
14
15
Latest: February 2016
Source: Statistics Canada.
16
21
B U S I N E S S C O U N C I L’ S F O R E C AS T
(annual % change unless otherwise indicated)
2014
2015
2016f
2017f
Real GDP
3.2
2.6e
2.8
3.0
Employment
0.6
1.2
1.3
1.3
Unemploy. rate (%)
6.1
6.2
5.8
5.7
28,400
31,400
30,200
30,000
Retail sales
5.5
6.5
6.0
5.0
All-items CPI
1.2
1.1
1.5
1.6
Housing starts –
all areas (units)
Source: Business Council of BC.
22
BC POISED TO LEAD ALL PROVINCES IN ECONOMIC GROWTH
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
Real GDP growth forecasts, %
2016
BC
Alta
Sask
Man
Ont
Que
NB
NS
2017
PEI
Nfld
Source: TD Economics, April 2016
23
RECAP
•
We are operating amid a choppy and risk-prone global economy…with the situation not expected to
change in 2016-17
•
The recent growth slowdown in emerging economies represents an important shift
•
Modest growth looks to be in store for the United States in 2016-17, fueled by consumer spending
and a strong job market
•
Economic conditions remain difficult across much of the EU and in Japan
•
The ‘new normal’ looks to be a world featuring lower-for-longer interest rates (in the OECD), subdued
inflation, weaker potential growth in the advanced economies, and poor macro-economic policy
coordination at the global level
•
Canada is likely to lag the US on most key economic performance metrics in 2016-17