Tracking Economic and Financial Developments in the Current Global Recession Rob Wright Deputy...

Tracking Economic and Financial Developments in the Current Global

Recession


Recession

Rob WrightDeputy Minister of the Department of Finance

International Seminar on Timeliness, Methodology and Comparability of Rapid Estimates of Economic Trends

May 27, 2009



May 27, 2009

2

• Global Recession

• Impact on Canada

• Economic Action Plan

• The Role of Data in Policy Development

Outline

3

Global Recession

4

400

800

1,200

1,600

2,000

2,400

Jan2001

Jan2002

Jan2003

Jan2004

Jan2005

Jan2006

Jan2007

Jan2008

Jan2009

3

4

5

6

7

8

9

10

11

12

Largest drop in U.S. housing market on recordLargest drop in U.S. housing market on record

U.S. Housing Starts and Months Supply of Existing Homes

U.S. S&P/Case-Shiller Home Price Index

thousands,at annual rates

level, months supply atcurrent sales rate

Housing Starts (left scale)

Months supply of existing homes (right scale)

Sources: U.S. Census Bureau and U.S. National Association of Realtors.

Source: S&P, Fiserv and MacroMarkets LLC.

100

120

140

160

180

200

2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1

index, 2000 Q1 =100

32%

5

Effects on cost and availability of creditEffects on cost and availability of credit

Credit Spreads

Notes: These spreads are a measure of banks’ funding costs relative to a risk-free rate and are a gauge of financial market stress and banks’ financing pressures. The rate on the overnight-indexed swap (OIS) is used as a proxy for expected overnight rates. LIBOR is the London Interbank Offered Rate. CDOR is the Canadian Dealer Offered Rate. Daily data up to and including May 8, 2009.Source: Bloomberg.

basis points

-40

0

40

80

120

160

200

240

280

320

360

400

Jan 2007 May 2007 Sep 2007 Jan 2008 May 2008 Sep 2008 Jan 2009 May 2009

Canada (CDOR - OIS)

U.S. (LIBOR - OIS)

Euro area (LIBOR - OIS)

ABCP crisis

Lehman Brothers bankruptcy

6

Large financial losses worldwideLarge financial losses worldwide

Source: Bloomberg. Up to and including May 8, 2009.

IMF’s Estimates of Financial Sector Potential Writedowns (2007-2010)

0

500

1000

1500

2000

2500

3000

3500

4000

4500

World U.S. Europe* Japan

Billions, USD

-70

-60

-50

-40

-30

-20

-10

0

Canada(S&P/TSX)

U.S. (S&P500)

U.K. (FTSE100)

EMU (DJEuro

STOXX)

Total

Banks

World Equity Markets

% change since January 1, 2007

*Europe includes Euro area and the U.K.Source: IMF’s Global Financial Stability Report, April 2009.

7

Most severe and synchronized global recession since WWII, with a rapid deterioration in economic prospects in late 2008

Most severe and synchronized global recession since WWII, with a rapid deterioration in economic prospects in late 2008

Evolution of Private-Sector Average Forecasts for Real GDP Growth in 2009

per cent

Source: Blue Chip Economic Indicators - January 2008 to May 2009.

Date of forecast

per cent

6.5

7.5

8.5

9.5

Jan2008

Mar2008

May2008

Jul2008

Sep2008

Nov2008

Jan2009

Mar2009

May2009

-6

-5

-4

-3

-2

-1

0

1

2

3

China (left)

Canada (right)

U.S. (right)

Eurozone (right)

Japan (right)

World Economic Growth

-2

-1

0

1

2

3

4

5

6

7

1970 1975 1980 1985 1990 1995 2000 2005

per cent

Forecast

Actual

Note: World real GDP growth on a purchasing-power parity basis.Source: International Monetary Fund World Economic Outlook, April 2009.

8

Impact on Canada

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• Strong household and business balance sheets

• Housing market didn’t have same excesses as the U.S.

• Canadian banking sector considered the soundest in the world

• Best fiscal position in the G7

Canada is facing the recession from a position of strength

10

Canada has been less affected than other industrialized nations…Canada has been less affected than other industrialized nations…

-0.6

-1.8 -1.9-2.3

-4.4

-6.0

-4.0

-2.0

0.0

Canada United States Euro Area United Kingdom Japan

Source: Statistics Canada; U.S. Bureau of Economic Analysis (advance report for 2009Q1); Eurostat Flash Estimates; U.K. Office for National Statistics; Federal Statistical Office of Germany; National Institute for Statistics and Economic Studies of France; National Institute for Statistics of Italy; Economic and Social Research Institute of Japan.

Change in real GDP 2008Q2-2008Q4

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…but employment has been declining …but employment has been declining

98

100

102

104

106

108

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

Index, January 2005 = 100

Sources: Statistics Canada; U.S. Bureau of Labor Statistics .

U.S.

Canada

U.S. enters recession

Canada enters recession

Index of Total Employment

12

Economic Action Plan

13

Key elements of Canada’s Economic StimulusKey elements of Canada’s Economic Stimulus

• Help Canadians and Stimulate Spending ($12.8 billion)

EI/training/Tax relief

• Stimulate Housing Construction ($7.8 billion)

Social housing/Home Renovation and First-Time Home

Buyers’ Tax Credits

• Build Infrastructure ($11.8 billion)

Provincial/Territorial/Municipal/Federal

• Support Businesses and Community Adjustment ($7.5 billion)

Community Adjustment Fund/RInC/CCA/automotive

sector/clean energy technologies

14

Canada’s Economic Action Plan Compared to Stimulus Packages in Other G7 CountriesCanada’s Economic Action Plan Compared to Stimulus Packages in Other G7 Countries

Fiscal stimulus flowing in 2009 and 2010, share of GDP

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Canada Japan U.S. Germany France U.K. Italy

Source: Government releases. For comparability, stimulus estimates have been put on a Canadian fiscal year basis (April-March) for France, Germany, Italy and the U.S. *This represents the current estimate of the planned provincial spending.

Provincial-Territorial from Economic Action Plan

Provincial-Territorial additional

15

Key element of Canada’s Economic Action Plan: The Extraordinary Financing FrameworkKey element of Canada’s Economic Action Plan: The Extraordinary Financing Framework

Insured Mortgage Purchase Program $125 billion

New 10-year Canada Mortgage Bond $10 billion

Canadian Lenders Assurance Facility -

Canadian Life Insurers Facility -

EDC and BDC $13 billion

ABS Facility $12 billion

Bank of Canada $40 billion

Expanded authorities to strengthen financial system

16

Canada expected to be the least affected country reflecting underlying strengthsCanada expected to be the least affected country reflecting underlying strengths

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

JP GER IT UK FR US CAN

per cent

IMF Economic Outlook for G7 Countries

per cent

Source: International Monetary Fund World Economic Outlook, April 2009.

0.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

GER UK IT US FR JP CAN

20102009

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The Role of Data in Public Policy Development

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• Process of policy development is lengthy

Research and analysis required to understand when and where policy change and reform are needed

Designing policy

Developing consensus (political, public)

• We rely on high quality and timely data throughout the process

The Role of Data in Public Policy DevelopmentThe Role of Data in Public Policy Development

19

How can statisticians improve public policy?How can statisticians improve public policy?

• Identify and close data gaps

• Priority to long term issues and trends

• But need to be able to adapt to current developments, if possible

Identify turning points

• Consult users

Government, private sector, researchers

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• Adjust existing products to be even more relevant in current environment

• Labour Force Survey (LFS)—add questions to address how people deal with unemployment (training, schooling, relocation)

• Survey of Employment, Participation and Hours (SEPH)—add questions about sales and production prospects across sectors of the economy

Turning PointsTurning Points


Recession


Recession



May 27, 2009



May 27, 2009

Tracking Economic and Financial Developments in the Current Global Recession Rob Wright Deputy...

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Transcript of Tracking Economic and Financial Developments in the Current Global Recession Rob Wright Deputy...