CANADA-BRAZIL: OPPORTUNITIES IN A DIFFICULT TIME

Craig Alexander

SVP & Chief Economist

TD Bank Group

GLOBAL ECONOMY STRUGGLING

0

1

2

3

4

5

6

2002 2004 2006 2008 2010 2012 2014 2016

World GDP growth, Y/Y % Chg.

Source: IMF. Forecast by TD Economics as at January 2015.

Forecast

2

NORTH AMERICA OUTPERFORMING

3

GLOBAL SLOWDOWN HAS LED TO COMMODITY CORRECTION…

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

89

90

91

92

93

94

95

96

2012 2013 2014 2015 2016

Balance

Supply

Demand

Source: Bloomberg, IEA, TD Secutiries. As at January 2015.

Supply and Demand (Millions of barrels per day) Balance (Millions of barrels per day)

Forecast

4

… BUT CANADA WILL REMAIN AN OUTPERFORMER

-6

-4

-2

0

2

4

6

8

10

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Real GDP

Nominal GDP

Source: Statistics Canada. Forecast by TD Economics as at January 2015. *2014 is expected figure.

Y/Y % Chg.

Forecast

5

Ontario

Québec

British-Columbia

Alberta

Manitoba

Saskatchewan

Nova-Scotia

New Brunswick

Newfoundland &Labrador

Prince Edward Island

Territories

Total Population in 2014

35.5 Billion

6

1,827

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

US Japan Germany France UK Italy Canada

Source: IMF, World Economic Outlook Database

Nominal GDP in 2013, Billion $US

TO UNDERSTAND WHY, NEED TO UNDERSTAND CANADIAN ECONOMY

SMALL IN SCALE, BUT SECOND RICHEST PER CAPITA IN G7

7

52,387

0

10,000

20,000

30,000

40,000

50,000

60,000

US Canada Germany France UK Japan Italy

Source: Haver Analytics

Nominal GDP per capita in 2013, $US

MEDIAN INCOMES IN CANADA HIGHER THAN THE US, EVEN AFTER TAXES

20,000

30,000

40,000

50,000

60,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

United States

Canada

Source: Statistics Canada, Federal Reserve of St. Louis, Canada Revenue Agency, IRS, TD Economics

Median household income, US$

8

United States, 32%

United Kingdom, 14%

Germany, 7%

Canada, 6%

Netherlands, 5%

France, 4%

Switzerland, 3%

Japan, 3%

Others, 27%

9

0 10 20 30 40 50 60

Canada

Japan

United States

United Kingdom

OECD average

France

Germany

Italy

Source: OECD Education at a Glance 2014, TD Economics

Share of population (%)

HIGHLY EDUCATED POPULATION

4th HIGHEST SHARE OF UNIVERSITIES IN GLOBAL

TOP 250

Source: Times Higher Education, TD Economics

WITH THE LOWEST DEBT IN THE G7

10

0

50

100

150

200

250

Canada Germany UK France US Italy Japan

Source: Statistics Canada, Haver Analytics

Central Government DebtPercent of GDP (2013)

WELL ANCHORED INFLATION, PRUDENT MONETARY POLICY

11

EASY TO DO BUSINESS & SOUNDEST BANKS IN THE WORLD

12

Rank Overall Index Starting a Business

Ease of Getting Credit

1 Singapore New Zealand New Zealand

2 New Zealand Canada United States

3 Hong Kong Macedonia Columbia

4 Denmark Armenia Australia

5 Korea Georgia Montenegro

6 Norway Singapore Rwanda

7 United States Australia Canada

… … …

16 Canada … …

… … …

189 Eritrea Myanmar Eritrea

World Bank 2015 Ease of Doing Business Index

2011 2012 2013 2014 2015

1

2

3

4

5

Soundness of banking system

Source: World Bank Source: World Economic Forum

COMPETITIVE CORPORATE TAX RATES

0

5

10

15

20

25

30

35

40

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Canada

United States

Source: Canada Revenue Agency, OECD, TD Economics

Federal corporate tax rate, %

13

DIVERSIFIED ECONOMY

14

0% 5% 10% 15% 20%

Transportation

Education

Professional services

Public admin.

Health care

Construction

Mining

Manufacturing

Trade

Finance, Insurance& Real Estate

Source: Statistics Canada* 10 largest industries (January through November 2014)

Share of total GDP*

DIVERSIFIED EXPORT SECTOR

15

25%

14%

14%

13%

11%

7% 6%5%

4%

Energy Products

Metals and minerals

Motor vehicles and parts

Agricultural and forestryproducts

Consumer goods

Chemicals and plasticsproducts

Industrial machinery andequipment

Electronic and electricalequipment

Aircraft and transportationequipment

Source: Statistics Canada.*January through November 2014

Share of total merchandise exports in 2014*

CANADA IS AMONG THE MOST OPEN TO TRADE

16

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Germany

U.K.

Canada

France

Italy

Japan

U.S.

Source: National Statistical Agencies, TD Economics

2013 Exports + Imports / GDP

CANADIAN ECONOMY STRONGLY TIED TO THE U.S. ECONOMY

-6

-4

-2

0

2

4

6

-20

-15

-10

-5

0

5

10

15

2006 2008 2010 2012 2014 2016

Canadian Real Exports (LHS)

U.S. Real GDP (RHS)

Source: Statistics Canada. Forecast by TD Economics December 2014.

Y/Y % Chg. Y/Y % Chg.

Forecast

17

CANADA CONTINUES TO PURSUE TRADE DEALS AND OPPORTUNITIES

18

0

2

4

6

8

10

12

0

100

200

300

400

500

600

1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

FTAs in Force (RHS)

Exports (LHS)

Source: Statistics Canada, DFATD Canada, TD Economics

Exports, blns 2007$ Number of agreements

OPPORTUNITY FOR MORE TRADE WITH BRAZIL

19

2%

0% 4% 8% 12% 16%

China

United Kingdom

Japan

Mexico

Hong Kong

Italy

South Korea

Netherlands

France

Belgium

…

(#14) Brazil

Source: Statistics Canada, Industry Canada*January through November 2014

Share of total merchandise exports* (ex. US)

BILATERAL TRADE EXPANDING, BUT LOTS OF OPPORTUNITY FOR MORE

20

+41%

+54%

-60%

-40%

-20%

0%

20%

40%

60%

80%

2004 2005 2006 2007 2008 2009 2009-13

Imports Exports

Source: Statistics Canada, Industry Canada* January to November 2014

Canadian exports and imports to Brazil*, % Chg.

CANADA IS OPEN TO INVESTMENT

21

0

100

200

300

400

500

600

700

800

900

2006 2007 2008 2009 2010 2011 2012 2013

Foreign Direct Investment in Canada

Canadian Direct Investment abroad

Source: Statistics Canada

Canadian dollars, billions

CANADA'S LONG-TERM GROWTH OUTLOOK BY SECTOR

22

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

Non-energy Mining

Public Administration

Educational Services

Construction

Accommod. & Food Services

Transportation & Warehousing

Information & Cultural Industries

Total - All Industries

Manufacturing

Oil & Gas

ICT*

Agriculture

Finance, Insurance & Real Estate

Retail Trade

Wholesale Trade

Health Care and Social Assistance

Forecast by TD Economics as at February 2015.*ICT: other services, profesional services, information and cultural industries, wholesale trade and manufacturing sectors.

Average annual per cent growth, 2015-2025

CANADA'S PRODUCTIVITY CHALLENGE

23

0%

1%

2%

3%

4%

5%

1950-59 1960-69 1970-79 1980-89 1990-99 2000-09 2010-13

Source: Centre for the Study of Living Standards, calculations from TD Economics

Avg. Growth Rate Business Sector Productivity (2009=100)

SOLUTION: ECONOMY SHIFTING TOWARDS SERVICES…

24

10

12

14

16

18

20

22

24

26

62

64

66

68

70

72

1981 1985 1989 1993 1997 2001 2005 2009 2013

Services (lhs) Manufacturing (rhs)

Source: Haver Analytics.

Share of Canadian real GDP, % Share of Canadian real GDP, %

…AND HIGHER VALUE ADDED MANUFACTURING

25

4

6

8

10

12

14

22

24

26

28

30

32

34

1981 1985 1989 1993 1997 2001 2005 2009 2013

Chemical, Machinery & Transportation Eq. (lhs)

Textiles, Clothing & Paper (rhs)

Source: Haver Analytics and TD Economics.

Share of Manufacturing real GDP, % Share of Manufacturing real GDP, %

CANADA AND BRAZIL FACE MANY COMMON CHALLENGES

• Both must cope with the weak global economy that is fraught with risk

• Cannot count on commodities to fuel growth in the near term, but will benefit when global demand recovers

• Monetary policy must constrain inflation, while promoting growth• Governments must run sound fiscal policy and respect budget

limits, but also invest in core public priorities – including infrastructure

• Promoting exports and investment can make economy less reliant upon domestic demand

• Going abroad creates opportunities, but also means firms must strive to be competitive, productive and innovative

• Policy makers must always look for ways to boost or enhance competitiveness

Challenges are often opportunities to unlock potential

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@CraigA_TD

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