Recent developments in the canadian economy dec2011
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Transcript of Recent developments in the canadian economy dec2011
Recent Developments in the Canadian EconomyDecember 2011
Bank of Canada
Dr. Farid Novin
Outline
World Economy
The United States
Canada and BC
2
The World Economy
3
2007 2008 2009 2010 201130
35
40
45
50
55
60
Balance of opin-ion
Global economic growth has weakened considerably in recent months
4
World manufacturing purchasing managers’ index
Sources: JP Morgan and Markit
Emerging economies continue to lead global growth
5
Real GDP (y/y % change)
Source: IMF
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
2
4
6
8
10
12
14
China India
6
The recovery among major economies continues to be uneven
Real GDP Q/Q % at annual rate
Source: IMF, Stats Canada
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-15
-10
-5
0
5
10
UK USA Japan Germany Canada
The euro area is projected to enter a mild recession at the end of 2011, followed by a modest recovery in mid-2012
-2 -1 0 1 2 3 4 5 69095100105110115120125130135
Min Current cycle Dateline Series7
IndexChart 12:
Start of the recession
Years after the start of the recession
Years before thestart of the reces-sion
Euro-area real GDP across economic cycles; start of recession = 100
8
2008 2009 2010 20110.00.51.01.52.02.53.03.54.04.5
Canada United States Euro area Japan
%Chart 7:
Policy rates remain at or near historic lows in most advanced economies
Source: Bank of Canada, US Federal Reserve, European Central Bank, Bank of Japan
99
Large deficits remain a problem for many countries...
Canad
a
Italy
Japa
n
USAG
reec
e
Irelan
d
Portu
gal
Spain
-30
-20
-10
0
2008 2009 2010
Deficit as a % of GDP, all levels of government
Source: IMF
10
Euro-area sovereigns, even some larger core countries, are facing rising funding costs10-year sovereign yield spreads over German bonds, basis points
2008 2009 2010 20110
400
800
1200
1600
2000
2400
0200400600800100012001400
Greece (left scale) Ireland Portugal Spain Italy France
Basis points
Chart 10:
Last observation: 21 October 2011Source: Bloomberg
Basis points
US economy
11
12
-6
-4
-2
0
2
4
6
8
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
GDP Final Domestic Demand
US GDP and Final Domestic Demand
(volume, y/y % change)
13
U.S. real GDP growth is projected to remain modest, consistent with the historical experience after financial crises
U.S. real GDP across economic cycles; start of recession = 100, quarterly data
-2 -1 0 1 2 3 4 5 69095100105110115120125130135
Min U.S. current cycle Dateline Series7
IndexChart 13:
Start of the recession
Years after the start of the recession
Years before the start of the recession
2008 2009 2010 20110
1000000
2000000
3000000
TALF Swaps CP loan facility TAC
MBS Other Treasury's
14
Quantitative easing has led to an increase in the Federal Reserve’s balance sheet
Federal Reserve Assets, Trillions of US$
2008 2009 20100
1000000
2000000
3000000
othersGADepository InstitutionsSFAReverse RepoFederal Reserve notes
Federal Reserve Liabilities, Trillions of US$
Canada and B.C.
15
Canadian GDP and Final Domestic Demand
16Source: Statistics Canada
(volume, y/y % change)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-6
-4
-2
0
2
4
6
GDP FDD
Growth in Canadian real GDP stalled in the second quarter as net exports plunged
Contributions to real GDP growth
2006 2007 2008 2009 2010 2011-10-8-6-4-202468
Real gross domestic product Real final domestic demand Net exports
%Chart 15:
Source: Statistics Canada
18
Real GDP growth is expected to pick up through 2012, resulting in a gradual absorption of excess supply
2007 2008 2009 2010 2011 2012 2013-9
-6
-3
0
3
6
Quarter-over-quarter percentage change in real GDP, at annual ratesBase-case projectionBase-case projection
%Chart 24:
Sources: Statistics Canada and Bank of Canada projections
Domestic demand is projected to remain the primary driver of growth
2009 2010 2011 2012 2013-6
-4
-2
0
2
4
6
Inventories Net exports Government Business fixed investment HousingConsumption GDP
Percentage points
Chart 25:
Sources: Statistics Canada and Bank of Canada calculations and projections
Contributions to real GDP growth
20
Business fixed investment is projected to remain robust
Comparison of real business fixed investment across economic cycles; quarter before the downturn in real GDP = 100, quarterly data
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 207580859095100105110115
Current cycle 1990-92 cycle 1981-82 cycle
Index
Chart 29:
Sources: Statistics Canada and Bank of Canada calculations and projections
Years before the downturn in real GDP
Years after the downturn
Years be-fore the
downturn
Private and Public Sector Investment20
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
* -20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
BC Canada
Source: Stats Canada
* Intentions
(y/y % change)
22
Employment has nearly returned to pre-recession levels in B.C.
Source: Statistics Canada
Index 2006Q1=100
2006 2007 2008 2009 2010 201194
96
98
100
102
104
106
108
110
B.C. Canada
Commodity prices
23
Source: Bank of Canada
Index 2006=100
2006 2007 2008 2009 2010 20110
50
100
150
200
250
Oil Copper Lumber Nat. Gas
BC’s forestry industry has been severely affected by the US housing recession
Source: BC Stats
Exports ($millions)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
YT
D
0
2,000
4,000
6,000
8,000
10,000
12,000
Wood products Pulp & paper products
However, efforts to grow Chinese demand for BC’s softwood lumber have been very successful
Share of BC softwood lumber exports by value (%)
Growth in value of softwood lumber exports to China (y/y% change)
Source: BC Stats25
2006
2007
2008
2009
2010
2011
YT
D
0
20
40
60
80
100
120
0
10
20
30
40
50
60
70
80
United States JapanChina
26
Capacity pressures have eased in recent months
2006 2007 2008 2009 2010 20110
10203040506070
-4
-3
-2
-1
0
1
2
3
Some and significant difficulty* (left scale)Labour shortages** (left scale)Conventional measure of the output gap*** (right scale)
% %Chart 16:
Share of realglobal GDPa
(per cent)
Projected growth (per cent)b
2010 2011 2012 2013
United States 20 3.0 (2.9) 1.7 (2.4) 1.7 (3.2) 3.3 (3.3)
Euro Area 15 1.7 (1.7) 1.5 (2.0) 0.2 (1.6) 1.5 (1.9)
Japan 6 4.0 (4.0) -0.6 (-0.6) 2.0 (2.9) 2.5 (3.0)
China 13 10.4 (10.3) 9.1 (9.3) 8.2 (8.6) 8.2 (8.1)
Rest of the world 46 5.7 (5.5) 4.3 (4.2) 3.3 (3.8) 3.4 (3.6)
World 100 5.1 (5.0) 3.8 (3.9) 3.1 (4.0) 3.7 (3.9)
a. GDP shares are based on IMF estimates of the purchasing-power-parity (PPP) valuation of country GDPs for 2010.Source: IMF, WEO, September 2011b. Numbers in parentheses are projections used for the July 2011 Monetary Policy Report. Source: Bank of Canada
Table 1: Projection for global economic growth
2010 2011 2012 2013
Consumption 2.0 (2.0) 1.0 (1.3) 1.2 (1.6) 1.4 (1.1)
Housing 0.7 (0.7) 0.1 (0.1) 0.0 (0.0) 0.1 (0.0)
Government 1.2 (1.2) 0.3 (-0.1) -0.1 (-0.3) 0.3 (0.2)
Business fixed investment 0.8 (0.8) 1.4 (1.6) 0.7 (1.1) 1.0 (0.7)
Subtotal: Final domestic demand 4.7 (4.7) 2.8 (2.9) 1.8 (2.4) 2.8 (2.0)
Exports 1.8 (1.8) 1.2 (1.3) 0.9 (1.1) 1.1 (1.1)
Imports -4.0 (-4.0) -2.1 (-1.7) -0.7 (-0.8) -1.0 (-1.0)
Subtotal: Net exports -2.1 (-2.1) -0.9 (-0.4) 0.2 (0.3) 0.1 (0.1)
Inventories 0.6 (0.6) 0.2 (0.3) -0.1 (-0.1) 0.0 (0.0)
GDP 3.2 (3.2) 2.1 (2.8) 1.9 (2.6) 2.9 (2.1)
Memo items:Potential output 1.6 (1.6) 1.6 (1.8) 2.0 (2.0) 2.1 (2.1)
Real gross domestic income (GDI) 5.0 (5.0) 2.8 (4.1) 1.1 (2.9) 3.6 (2.2)
a. Figures in parentheses are from the base-case projection in the July 2011 Monetary Policy Report.Those for potential output are from Technical Box 2 in this Report.
Table 2: Contributions to average annual real GDP growthPercentage pointsa
2010 2011 2012 2013
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Real GDP(quarter-over-quarterpercentage changeat annual rates)
3.1 3.6 -0.4 2.0 0.8 1.9 2.5 3.0 3.0 3.0 3.0 3.0 3.0
(3.1) (3.9) (1.5) (2.8) (2.9) (2.9) (2.6) (2.5) (2.1) (2.1) (2.1) (2.1) (2.1)
Real GDP(year-over-yearpercentage change)
3.3 2.9 2.2 2.1 1.5 1.1 1.8 2.1 2.6 2.9 3.0 3.0 2.9
(3.3) (2.9) (2.7) (2.8) (2.8) (2.5) (2.8) (2.7) (2.5) (2.3) (2.1) (2.1) (2.1)
Core inflation(year-over-yearpercentage change)
1.6 1.3 1.6 1.9 2.0 1.8 1.7 1.7 1.6 1.8 1.9 1.9 2.0
(1.6) (1.3) (1.7) (1.9) (2.0) (2.1) (2.0) (2.0) (2.0) (2.0) (2.0) (2.0) (2.0)
Total CPI(year-over-yearpercentage change)
2.3 2.6 3.4 3.0 2.7 1.9 1.0 1.2 1.5 1.8 1.9 1.9 2.0
(2.3) (2.6) (3.4) (2.8) (2.6) (2.3) (1.9) (2.0) (2.0) (2.0) (2.0) (2.0) (2.0)
Total CPI excludingthe effect of theHST and changes inother indirect taxes(year-over-yearpercentage change)
1.9 2.1 2.9 3.0 2.6 1.9 1.0 1.2 1.5 1.8 1.9 1.9 2.0
(1.9) (2.1) (2.9) (2.8) (2.5) (2.3) (1.9) (2.0) (2.0) (2.0) (2.0) (2.0) (2.0)
WTIb
(level)85 94 103 90 85 87 87 87 88 88 88 88 88
(85) (94) (103) (97) (98) (100) (101) (102) (102) (103) (103) (103) (103)
a. Figures in parentheses are from the base-case projection in the July Monetary Policy Report.b. Assumptions for the price of West Texas Intermediate crude oil (US$ per barrel), based on an average of futures contracts over the two weeks ending 21 October
2011
Table 3: Summary of the base-case projection for Canadaa