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
27
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