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The Economic Outlook: A Multi-speed Recovery

in a Turbulent World

Burlington Economic Development April 28, 2011

Glen HodgsonSenior Vice-President and Chief Economist

[email protected]


Global Outlook

• The global economy has recovered, but with sharp differences among regions

• Japan’s natural disaster and aftermath has severely impacted short-term growth

• Slow recovery in W. Europe, with continuing public debt and energy price risks

• Medium speed in North America – real growth in Canada, too much artificial growth in the U.S.

• High speed growth in emerging markets


A Risky World Plenty of risks to go around:

• Global imbalances remain

• Earthquakes and aftermath in Japan, New Zealand

• Public sector debt in EU, Japan, U.S.

• Political turmoil in N. Africa, Middle East

• Higher oil and food prices

• Inflation in emerging markets


Uneven Growth in Global Economy(per cent change, real GDP)

Source: Consensus Economics.

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Japan E.U. North America

Latin America

Asia Pacific Asia Pacific (excl Japan)

2010 2011 2012


Government Debt as a share of GDP(per cent, 2010)

Source: IMF


U.S. Outlook • U.S. growth set to expand by around 3.0 per cent

over the near term

• Better prospects in labour markets as well as rising consumer and business confidence

• But housing sector still a mess

• Extension of Bush tax cuts and lower payroll and business taxes will result in trillion dollar-plus deficits and massive public debt over the medium term.

• Oil price impact: every $10 increase in a barrel of oil chops 0.2 percentage points from U.S. GDP growth



U.S. Vehicle Sales(millions, annualized)

Source: Moody’s Economy.com

7

8

9

10

11

12

13

14

15


U.S. Commercial Bank Lending Finally Turning the Corner (commercial and industrial, $ billions)

Source: FRB

120012501300135014001450150015501600


-800-700-600-500-400-300-200-100

0100200300400500

U.S. Labour Market(Change in U.S. Employment, 000s)

Source: Bureau of Economic Analysis.


20

30

40

50

60

70

80

90

100

110

120

U.S. Consumer Confidence (1985=100)

Source: The Conference Board Inc.


-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

U.S. Real Consumer Spending(per cent change)

Sources: BEA; CBoC.


U.S. Existing Home Sales and Prices (millions SAAR; $thousands)

Source: National Assn. of Realtors.

200

210

220

230

240

250

260

270

280

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Sales Average Price


US Housing Starts(millions, SAAR)

Source: Moody’s Economy.com

0.40.60.81.01.21.41.61.82.02.22.4


-1,500

-1,250

-1,000

-750

-500

-250

0

250

500

U.S. Federal Deficit (NIPA basis, $billions)

Sources: CBO; CBoC.


U.S. Debt as % of GDP(net debt)

Source: IMF

30

40

50

60

70

80

90


-3

-2

-1

0

1

2

3

4

5

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

U.S. Real GDP(per cent change)

Sources: BEA; CBoC.


Canadian Outlook

• Fiscal and household restraint will hold overall GDP growth to 2.4 per cent this year.

• U.S. economy seems finally to have found its footing—a relatively solid expansion is expected this year and next.

• Inflation expectations remain muted despite high gasoline and food prices—still rate hikes are on the way.

• Economic outlook is positive enough to allow the federal government to return to fiscal balance but provinces will continue to struggle.

• Numerous external risks can still derail the near-term growth path.


0

20

40

60

80

100

120

140

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

00 01 02 03 04 05 06 07 08 09 10 11 12

Dollar (left) Oil Price (right)

The Loonie and the Oil PriceWTI $US, $US/$C

Sources: The Conference Board of Canada; U.S. EIA; Statistics Canada.


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Sources: The Conference Board of Canada; BEA; Statistics Canada.

Canada

Interest Rates (90-Day T-Bill) Quarterly 1999–14

U.S.


Employment Growth Canada, 2001–12

Sources: The Conference Board of Canada; Statistics Canada.

-2.0-1.5-1.0-0.50.00.51.01.52.02.5

01 02 03 04 05 06 07 08 09 10 11 12

269,000 jobs lost 231,000 jobs gained


5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0


Unemployment Rate

Natural rate

Unemployment Rate vs. Natural Rate (percent), 1981-2015


0.0

1.0

2.0

3.0

4.0

5.0

0.0

1.0

2.0

3.0

4.0

5.0

02 03 04 05 06 07 08 09 10 11f 12f

Average Weekly Wages CPI

Growth in Industrial Composite Average Weekly Wage versus CPI (per cent change)

Sources: The Conference Board of Canada; Statistics Canada


Index of Consumer Confidence, CanadaJan 2004–Feb 2011 (2002 =100)

40

50

60

70

80

90

100

110

120

Source: The Conference Board of Canada.


Real Consumer Spending Growth Canada 2001–12


0.0

1.0

2.0

3.0

4.0

5.0

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


Housing Starts vs. Demographic Requirements Canada 1997—15 (000s)

Sources: The Conference Board of Canada; Canada Mortgage and Housing Corporation.

120

140

160

180

200

220

240Household formation


Pre–Tax Corporate Profits(per cent share of net domestic income)


Historical Peak of 18.2 per cent


Real Business Investment Growth (Canada 2002–12)



Non-Residential, Capital Investment($ billions of $2002, 2003–15)


20

25

30

35

40

45

50

2003 04 05 06 07 08 09 10 11f 12f 13f 14f 15f

Non-Energy Energy


Real Government Spending on Goods and Services Canada

(per cent change, 2001–12)


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

01 02 03 04 05 06 07 08 09 10 11 12


-50

-40

-30

-20

-10

0

10

20

Federal Provinces

Federal and Regional BalancesNational Accounts Basis ($ billions)

Sources: Statistics Canada; The Conference Board of Canada.


Federal and Provincial Gov’t Debt(as a Share of GDP 2010-11)

Sources: The Conference Board of Canada; Statistics Canada; various government budgets.


Real GDP Growth Rate Canada 2002–12


-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

02 03 04 05 06 07 08 09 10 11 12


Conclusion

• A turbulent global economic environment

• Canada’s growth will moderate in 2011 as consumer and government spending eases

• The strong dollar is here to stay; Canadian firms will need to stay focused on remaining competitive

• The U.S. economy is recovering but better job gains are needed

• The path back to balanced budgets will be painful for America


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