ottawa chamber of commerce/ ottawa business journal ......eiotlkeconomic outlook ottawa chamber of...

E i O tl kEconomic Outlook Ottawa Chamber of Commerce/ Ottawa Business Journal: Mayor’s Breakfast SeriesOttawa, Ontario27 April 2012

Mark CarneyMark CarneyGovernor

Agenda

Three global forces

The consequences for Canada

The current outlook

What must be done?at ust be do e

2

Global Forces:Global Forces:

The Rise of Emerging Market EconomiesThe Rise of Emerging-Market Economies

3

Very robust growth in emerging markets Real GDP, Index 2007Q1=100, quarterly data

150

160

150

160Index IndexReal GDP, Index 2007Q1 100, quarterly data

130

140

130

140

110

120

110

120

90

100

2007 2008 2009 2010 201190

100

4

China Emerging market and developing economies

Last observation: 2011Q4Note: Emerging market and developing economies is calculated using annual growth rate from IMF 2012 April WEO. Source: Statistics Canada, Bureau of Economic Analysis, China National Bureau of Statistics, IMF 2012 April WEO, Bank of Canada.

Very robust growth in emerging markets Real GDP, Index 2007Q1=100, quarterly data

150

160

150

160Index IndexReal GDP, Index 2007Q1 100, quarterly data

130

140

130

140

110

120

110

120

90

100

2007 2008 2009 2010 201190

100

5

U.S. Canada China Emerging market and developing economies

Last observation: 2011Q4Note: Emerging market and developing economies is calculated using annual growth rate from IMF 2012 April WEO. Source: Statistics Canada, Bureau of Economic Analysis, China National Bureau of Statistics, IMF 2012 April WEO, Bank of Canada.

Emerging markets now account for bulk of growthContribution to global growth

100

%Contribution to global growthPercentage contributions to global real GDP growth, annual data

60

80

20

40

2000 20110

20

6

Advanced economies Emerging and developing economies

Last observation: 2011Source: International Monetary Fund World Economic Outlook, Bank of Canada calculations

Massive, rapid urbanizationChange in urbanized population

500

600

Millions of peopleChange in urbanized population

300

400

100

200

0

100

1970 - 1990 1990 - 2010 2010 - 2030 f

7

More developed regions India & China

Note: f denotes forecastSource: United Nations - World Urbanization Prospects


Elevated Commodity PricesElevated Commodity Prices

8

Non-agriculture commodity prices up10-fold since WWIIReal commodity prices in the post-war period

1600600

Real commodity prices in the post war period1946 = 100

IndexIndex

Average industrial metals and energy

800

1000

1200

1400

400

500

Average industrial metals and energyprices (2002-2011, right axis)

Average industrial metals and energyprices (1971-2001, right axis)

200

400

600

800

200

300prices (1971 2001, right axis)

-200

0

200

0

100

1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

9

Industrial Metals (left axis) Agriculture (left axis) Energy (right axis)

Last observation: 2011Source: Bank of Canada, U.S. Bureau of Labor Statistics

Commodity prices remain elevatedIndexBank of Canada commodity price index (rebased to January 2009 = 100)

180

200

Bank of Canada commodity price index (rebased to January 2009 100)

140

160

120

2009 2010 2011 201280

100

10

All commodities (US$) Non-energy commodities (US$) Energy commodities (US$)

Last observation: April 2012Note: April 2012 figures are calculated based on the average of daily spot prices up to 20 April 2012. Source: Bank of Canada

Large gap between Canadian and global oil prices

0

10US$/BarrelDaily data

30

-20

-10

-50

-40

-30

May-2008 May-2009 May-2010 May-2011

-60

Western Canadian Select minus West Texas Intermediate

11

West Texas Intermediate minus Brent Western Canadian Select minus Brent

Last observation: April 2012Note: Values in April 2012 are estimates based on the average daily spot prices up to 13 April 2012. For Brent crude oil prices, front-month futures prices are used. Sources: Bank of Canada and Bloomberg


The Great DeleveragingThe Great Deleveraging

12

Sharp increase in debt across developed worldPercentage pointsChanges in household, corporate and net government debt

200

250

g pChanges in household, corporate and net government debtas percentages of nominal GDP from 1980 to 2010

150

200

100

Canada Germany Australia United France United Japan Greece Spain Italy Portugal0

50

13

Canada Germany Australia United States

France United Kingdom

Japan Greece Spain Italy Portugal

Note: Some figures refer to change from 1980 to 2009. Source: Cecchetti, Mohanty and Zampolli (2011)

U.S. non-financial debt near levels of Great Depression

U S non financial debt to GDP ratio

300

%U.S. non-financial debt-to-GDP ratioPercent of GDP

250

200

100

150

14

1916 1921 1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011

Last observation: 2011Q4Source: U.S. Census Bureau data from 1916 to 1953, U.S. Flow of Funds data from 1954 to 2011, Bureau of Economic Analysis

Weakest U.S. recovery since Great DepressionIndexU.S. Real GDP across economic cycles

135

145

U.S. Real GDP across economic cyclesStart of recession = 100, quarterly data

Start of the recession

105

115

125

85

95

Years after the start f th i

Years before the t t f th i

-2 -1 0 1 2 3 4 5 6 765

75of the recessionstart of the recession

15

Range of past recession (1948 onward) U.S. current cycle Base-case projection

Note: The Big Five modern financial crises are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development and Bank of Canada projections


135

145



105

115

125

85

95



-2 -1 0 1 2 3 4 5 6 765

75

R f t i (1948 d) Th Bi Fi d fi i l i

of the recessionstart of the recession

16

Range of past recession (1948 onward) The Big Five modern financial crises

U.S. current cycle Base-case projection



135

145



105

115

125

85

95



-2 -1 0 1 2 3 4 5 6 765

75

Range of past recession (1948 onward) The Big Five modern financial crises

of the recessionstart of the recession

17

Range of past recession (1948 onward) The Big Five modern financial crisesU.S. current cycle Great DepressionBase-case projection


Rebuilding U.S. wealth will take a long timeRatioHousehold net worth to disposable income US$

6.1

6.3

6.5RatioHousehold net worth to disposable income

8000

9000

US$billions

5.5

5.7

5.9

5000

6000

7000

4.9

5.1

5.3

2000

3000

4000

1990 1993 1996 1999 2002 2005 2008 20114.5

4.7

0

1000

W lth l t i 2007 k

18

20-year average

Sources: U.S. Bureau of Economic Analysis, Federal Reserve Board and Bank of Canada calculations Last observation: 2011Q4

Wealth lost since 2007 peak

Level of savings in 2011

Rebuilding U.S. wealth will take a long timeRatioHousehold net worth to disposable income US$

6.1

6.3

6.5RatioHousehold net worth to disposable income

8000

9000

US$billions

5.5

5.7

5.9

5000

6000

7000

4.9

5.1

5.3

2000

3000

4000

1990 1993 1996 1999 2002 2005 2008 20114.5

4.7

0

1000

W lth l t i 2007 k

19

20-year average

Sources: U.S. Bureau of Economic Analysis, Federal Reserve Board and Bank of Canada calculations Last observation: 2011Q4

Wealth lost since 2007 peak

Level of savings in 2011

Euro-area recovery was weak, is overEuro area real GDP across economic cycles

115

IndexEuro area real GDP across economic cyclesStart of recession = 100, quarterly data


105

110

95

100

-2 -1 0 1 2 3 4 5 690

Years after the start of the recession

Years before thestart of the recession

20

Range of past recessions (1980 onward) The Big Five modern financial crises Current cycle Base-case projection

Note: The Big Five modern financial crises include Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: Eurostat and Organisation for Economic Co-Operation and Development

European tensions still elevated%Yields on 10-year sovereign bonds, daily data

7

8%Yields on 10 year sovereign bonds, daily data

4

5

6

2

3

4

2009 2010 2011 20120

1

21

Germany France Italy Spain

Last observation: 25 April 2012Source: Bloomberg

A balance of payments problemIndexUnit labour cost annual data 2000=100

140

150

IndexUnit labour cost, annual data, 2000=100

120

130

100

110

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201190

Germany France Portugal Ireland Italy Spain

22

Germany France Portugal Ireland Italy Spain

Last observation: 2011Sources: Deutsche Bundesbank, Institut national de la statistique et des études économiques, Instituto Nacional de Estatistica, Central Statistics Office, IstitutoNazionale di Statistica and Instituto Nacional de Estadistica

Private deleveraging, public leveragingPercentage point Household and government debt

30

40

g pchange, 2007 to 2011Household and government debt

10

20

-20

-10

0

Spain United Kingdom United States-30

Debt/disposable income General government gross debt (% GDP)Debt/disposable income General government gross debt (% GDP)

Note: Figures for debt/disposable income refer to percentage point change from peak to trough. Latest available data for household debt is 2011 Q3 for Spain, 2011Q4 for others. 2011 forecast figures are used for government debt.Source: Bank for International Settlements, International Monetary Fund Fiscal Monitor April 2012, national statistics agencies

Consequences for CanadaConsequences for Canada

25

Canada: First G-7 country to recover to pre-recession GDP

IndexReal GDP; 2007Q1 = 100, quarterly data

104

106

Real GDP; 2007Q1 100, quarterly data

98

100

102

94

96

2007 2008 2009 2010 201190

92

26

Canada United States Euro area Japan

Last observation: 2011Q4Sources: Statistics Canada, U.S. Bureau of Economic Analysis, Eurostat, and Japan Statistics Bureau

Canada has more than recovered all jobs lostIndexTotal employment; index: 2007Q1 = 100, quarterly data

104

106

IndexTotal employment; index: 2007Q1 100, quarterly data

100

102

94

96

98

2007 2008 2009 2010 2011 201292

94

27

Canada United States Euro area Japan

Last observations: 2011Q4 and 2012Q1Note: Employment data for Japan in 2012Q1 is the average of January and February data.Sources: Statistics Canada, U.S. Bureau of Economic Analysis, Eurostat, and Japan Statistics Bureau

Weakest post-war export recoveryIndexComparison of real exports across economic cycles; quarter

160

170

IndexComparison of real exports across economic cycles; quarter before the downturn in real GDP = 100, quarterly data

Quarterly peak in GDP before the downturn

130

140

150

Years after the d t

Years before th d t

100

110

120downturnthe downturn

-1 0 1 2 3 4 5 680

90

28

Range of previous cycles (since 1951) Average of previous cycles (since 1951)Current cycle Base-case scenario

Sources: Statistics Canada and Bank of Canada calculations and projections

Canada’s export performance second worst in G-20

% h i h f ld t 2000 t 2010

JapanFrance

CanadaU.K.

% change in share of world exports, 2000 to 2010

IndonesiaGermany

ItalyMexico

U.S.Japan

AustraliaSaudi Arabia

KoreaArgentina

South AfricaIndonesia

ChinaIndia

TurkeyRussia

BrazilAustralia

29

-50 0 50 100 150 200

China

Source: International Monetary Fund

%

Canadian firms are losing competitiveness%Contribution of various factors to the change in Canada's relative unit labour costs

35

40

45

%Contribution of various factors to the change in Canada s relative unit labour costs vis-à-vis those in the United States, quarterly data

20

25

30

35

0

5

10

15

2005 2006 2007 2008 2009 2010 2011

-5

0

Canadian dollar vis-à-vis the U.S. dollarRelative wages

30

Relative wagesRelative productivityPercentage change in relative unit labour costs vis-à-vis the United States

Last observation: 2011Q4Sources: Statistics Canada, U.S. Bureau of Economic Analysis and Bank of Canada calculations

Canada’s trade directed toward slow growing economies

Average growth rates 2000 2010 annual data

10

12

%Average growth rates 2000-2010, annual data8% of exports

6

885% of exports

2

4

0

31

Last observation: 2010Sources: International Monetary Fund World Economic Outlook, Industry Canada, Bank of Canada calculations

*This country is not one of Canada's top 15 trading partners. Note: Export shares in 2010 are reported.

Canada has relied on domestic demandEvolution of real private domestic demand since pre-recession peak

110

IndexEvolution of real private domestic demand since pre recession peakIndex, peak of real GDP =100, quarterly data

100

105

95

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1690

Canada (April MPR) United States Japan United Kingdom Euro area

Quarters

32

Canada (April MPR) United States Japan United Kingdom Euro area

Last observation: 2012Q3 for Canada, 2011Q4 for all others

Note: Private domestic demand includes consumer, business and residential investment, except for the Euro area and United Kingdom, which also includes government investment. Sources: Bank of Canada, Statistics Canada, U.S. Bureau of Economic Analysis, Eurostat, Japan Cabinet Office, and the U.K. Office for National Statistics via Haver

Borrowing costs remain at exceptionally low levels%Weekly data

6.5

7.0

%Weekly data

5.0

5.5

6.0

3.5

4.0

4.5

2008 2009 2010 2011 20122.5

3.0

33

Effective business interest rate Effective household interest rate

Last observation: 13 April 2012Source: Bank of Canada calculations

Share of household expenditures in GDP now highRatioQuarterly data

0.66

0.68

Quarterly data

0.62

0.64

0.58

0.60

1975 1980 1985 1990 1995 2000 2005 20100.56

0.58

34

Nominal consumption and residential investment to nominal GDP Average from 1975Q1 to present

Note: Dotted line indicates a projection.Sources: Statistics Canada and Bank of Canada calculations

Canadians now more indebted than Americans and British

RatioAggregate debt-to-income ratio

1.6

1.7

1.8Aggregate debt to income ratio

1.3

1.4

1.5

1.0

1.1

1.2

0.8

0.9

35

Canada United States United Kingdom

Last observation: 2011Q4Source: Statistics Canada, U.S. Federal Reserve, U.K. Bureau for National Statistics

The Current OutlookThe Current Outlook

36

Projection for economic growth (per cent)

2002-2007 average

2011 2012 2013 2014

United States 2.6 1.7 2.3 2.5 3.6

Euro area 2.0 1.5 -0.6 0.8 1.4

Japan 1.6 -0.7 1.9 1.6 1.6

China 11.2 9.2 8.1 8.0 8.0

Rest of the world 5.1 4.3 3.4 3.5 3.7world

World 4.4 3.8 3.2 3.4 3.8

Canada 2.7 2.5 2.4 2.4 2.2

a. GDP shares are based on International Monetary Fund (IMF) estimates of the purchasing-power-parity (PPP) valuation of country GDPs for 2010. Sources: IMF World Economic Outlook, September 2011, Bank of Canada

37

Private domestic demand to continue driving growthPercentage pointsContributions to real GDP growth

4

6

Percentage pointsContributions to real GDP growth

0

2

4

-2

2009 2010 2011 2012 2013 2014

-6

-4

38

Net exports and government Private domestic demand GDP

Sources: Statistics Canada and Bank of Canada calculations and projections

Some slack remains in labour marketMonthly data, 3-month moving average

309%%

Monthly data, 3 month moving average

26

28

7

8

22

24

6

7

2052008 2009 2010 2011 2012

U l t t (l ft l ) I l t t ti k * ( i ht l )

39

Unemployment rate (left scale) Involuntary part-time workers* (right scale)

*Expressed as a percentage of total part-time employment, unadjusted, 12-month moving averageSource: Statistics Canada Last observation: March 2012

Robust business investment to continueComparison of real business fixed investment across economic cycles;

115

120

IndexComparison of real business fixed investment across economic cycles; quarter before the downturn in real GDP = 100, quarterly data

Quarterly peak before the downturn in real GDP

100

105

110

85

90

95

Years after the downturn

Years before the downturn

-1 0 1 2 3 4 5 675

80

40

Current cycle 1990-92 cycle 1981-82 cycle

Note: Dotted line indicates base-case scenario from April 2012 Report.Sources: Statistics Canada and Bank of Canada calculations and projections

Business more optimistic about future salesBalance of opinion*: Over the next 12 months, is your firm's sales volume expected to increase

50

60

%Balance of opinion : Over the next 12 months, is your firm s sales volume expected to increaseat a greater, lesser or the same rate as over the past 12 months?

10

20

30

40

20

-10

0

10

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-40

-30

-20

41

Greater: 58% Same:19% Lesser: 23%*Percentage of firms expecting faster growth minus percentage expecting slower growth.Source: Spring 2012 Business Outlook Survey

Total and core inflation in Canada expected to be around 2 %

%Year-over-year percentage change, quarterly data

3

4%Year over year percentage change, quarterly data

1

2

-1

0

2007 2008 2009 2010 2011 2012 2013 2014-2

42

Control range Total CPI Core CPI* Target

Note: Dotted lines indicate projections.*CPI excluding eight of the most volatile components and the effect of changes in indirect taxes on the remaining componentsSources: Statistics Canada and Bank of Canada calculations and projections

What Must Be DoneWhat Must Be Done

43

Global

Maintain open trade and capital markets

Implement financial reforms

Fiscal sustainability limits stimulus optionsFiscal sustainability limits stimulus options

Structural reforms across advanced economies

44

Europe

Implement:

– Bank recapitalization - more new capital fewer asset salesBank recapitalization more new capital, fewer asset sales

– Sizeable sovereign firewall

Buy time to re-found European Monetary Union

– Fiscal and structural adjustment across the crisis economies

– New economic governanceNew economic governance

45

Canada

Maintain price stability through flexible inflation targeting

Keep financial markets liq id and operatingKeep financial markets liquid and operating

Apply lessons of American and European crisespp y p– Importance of fiscal sustainability– Value of flexible exchange rates– Risks of excessive household debt– Imperative to use cheap foreign capital to maximum effect

Canadian businesses to refocus, retool and retrain 46

ottawa chamber of commerce/ ottawa business journal ......eiotlkeconomic outlook ottawa chamber of...

Documents