Outlook and Forecast

Canada and the Global Economy

Hendrik Brakel

Economic and Political Intelligence Centre

Export Development Canada

October 2013

2

GEARING UP for Growth

The Consumer Coming Back…(US Consumer Confidence, 1985=100)

3 Source: Conference Board

US Housing: Back to balance!(Surplus units, thousands)

4 Source: EDC Economics

US housing: gaining strength(Housing starts SAAR, ‘000 units)

5 Sources: US Census Bureau, Haver Analytics

Definite upward trend in home prices(US market, various sources, yoy %)

6 Sources: S&P, CoreLogic, FHFA, NAR, Haver Analytics

US Consumers: strong, stable trend!(Inflation-adjusted retail sales, $M)

7 Source: Federal Reserve Bank of St. Louis

4%

Cash & near-cash, US corporations, $B

Source: Federal Reserve Board, Haver Analytics

US spare capacity close to peak(Utilization of existing industrial capacity, %)

9 Sources: US Federal Reserve Board, Haver Analytics

Tighter capacity spurring investment(Capacity utilization, % and investment, yoy)

10 Sources: US Federal Reserve Board, BEA, Haver Analytics

Underlying growth, recovery-style(US GDP, chained $2005, %)

11 Source: BEA, Haver Analytics

Euro-Area Recession: Interminable?(Euro Area-17 GDP, % SAAR)

12 Source: Eudata

Sign of moderating concern?(10-yr sovereign bond yields, %)

13 Sources: S&P, CoreLogic, FHFA, NAR, Haver Analytics

Japan: Hope in recent policy moves?(GDP, SAAR, %)

14 Sources: Cabinet Office of Japan, Haver Analytics

BRIC Economies: Slowing? (GDP, % yoy, quarterly SAAR)

15 Sources: Country statistical agencies, Haver Analytics

QE Unwind Causing Trouble…

QE3: Where’s the Money??

QE3: Where’s the Money??

QE3: Where’s the Money??

Liquidity distortions?

Cash already in the system

Cash injection

Stockmarkets% Change between QE1 Announcement and End

2012

Bond Spreads% Change between QE1 Announcement and End

2012

Now, a normalization?

Normal Flows

Stockmarkets% Change between QE1 Announcement and End

2012

Bond spreads% Change between QE1 Announcement and End

2012

Who is at risk??

 

EDC Liquidity Flight Vulnerability

Ranking

Average Annual Bank credit growth 2009-2012

(%)

Rank

Average CAB 2009-

2012 (% of GDP)

Rank

Portfolio Flows (2009-

2012) as % of 2012

GDP

Rank

Turkey 1 26.07 2 (6.18) 3 8.0% 2 Sri Lanka 2 17.82 6 (4.27) 6 5.6% 8 India 3 17.30 7 (3.72) 10 4.0% 10 Poland 4 7.97 21 (4.38) 5 7.6% 3 Vietnam 5 23.83 3 (0.80) 17 2.9% 13 Mexico 6 13.93 10 (0.62) 19 6.4% 5 Dominican Rep 7 12.63 12 (7.21) 1 0.2% 23 Argentina 8 30.44 1 0.70 22 2.4% 14 Indonesia 9 21.91 4 0.04 21 3.3% 12 Brazil 10 18.76 5 (2.06) 14 1.1% 19 South Africa 11 5.33 22 (4.11) 8 3.7% 11 Costa Rica 12 9.03 17 (4.03) 9 1.7% 16 Colombia 13 15.78 8 (2.78) 12 -0.2% 24 Kazakhstan 14 8.86 18 2.41 24 7.2% 4 Morocco 15 8.72 20 (7.12) 2 -1.4% 26 South Korea 16 3.57 25 3.25 25 10.2% 1 Ukraine 17 2.04 28 (4.56) 4 1.0% 20 Peru 18 12.15 13 (2.16) 13 -3.4% 28 Thailand 19 13.32 11 3.47 26 1.6% 17 Romania 20 2.21 27 (4.25) 7 1.0% 21

Canadian dollar outlook

27

Canadian consumer debt: piling up(consumer debt as a share of disposable income, %)

28 Source: Statistics Canada

Uh-oh, a Canadian housing bubble?(Housing starts SAAR, ‘000 units)

29 Sources: CMHC, Haver Analytics

Shift to Investment

NR Can assessment

600 resource-sector projects…

…estimated cost: $650 billion

Large draw on labour force

All regions participate

True North: next frontier

Emerging Market Trade Booming(Emerging market share of total merchandise exports, %)

31 Sources: Statistics Canada, EDC Economics

Trade’s ‘Forgotten Parallel Universe’(Foreign affiliate sales indexes, 2000=100)

32 Sources: Statistics Canada, EDC Economics

33

Europe - Foreign Affiliate Sales vs. Direct Exports

Source: Statistics Canada. Table 376-0061 - Foreign affiliate trade statistics, Canadian operations abroad, by countries, annual, CANSIM (database).

A force to be reckoned with(Merchandise trade vs. foreign affiliate sales, non-OECD)

34 Sources: Statistics Canada, EDC Economics

Labour force in trouble(Estimated labour force aged 15-64)

35 Sources: Statistics Canada, Haver Analytics, EDC Economics

Labour force population in trouble(Statistics Canada M2 projection, population 15-54)

36 Sources: Statistics Canada, Haver Analytics; based on 1988-96 trends

Estimated strain: unemployment(Estimated unemployment rate, % of labour force)

37 Sources: Statistics Canada, Haver Analytics, EDC Economics

Most Pressing Challenge Companies Face

38 Sources: Statistics Canada, Haver Analytics, EDC Economics

Labour Market Conditions(the ability of companies to attract and retain workers)

39

Does your company face immediate labour and/or skills shortage today?

40 Sources: Statistics Canada, Haver Analytics, EDC Economics

Companies facing labour shortages by province

41 Sources: Statistics Canada, Haver Analytics, EDC Economics

Occupations with labour shortages

42

A Historic Shortage?

Overall in Canada, 220K job vacancies for 1.31M unemployed, 17.1M employed

Canada’s 1.3% vacancy rate near historic lows

In the US, 3.7M vacancies for 136.3M employed

US 2.7% vacancy rate relatively high

In both Canada and the US, little evidence of a labour shortage at the National level, however certain regions and industries as tight as pre-crisis period.

A Worsening Skills Shortage

Causes:

The Knowledge Economy

Technology and automation

Structural growth in certain skills and occupations

Rising demand for communication and social skills

Demographics and Regional industries

Immigration and restrictions on occupational entry

Schools and universities not adapting

But…Do businesses share responsibility??

A Skills shortage or a Training shortage?

Dr. Peter Capelli at Wharton: real culprits are employers themselves.

With an abundance of workers to choose from, employers are demanding more of job candidates than ever before.

Must be able to fill a role right away, without any training or ramp-up time.

Jobs can be organized in many different ways so that candidates who have very different credentials can do them successfully.

Only 10% of the people in IT jobs during the Silicon Valley tech boom of the 1990s, for example, had IT-related degrees.

Is a master’s necessary or could someone with a little training do the job pretty well?

Need to focus internally

In the US, apprenticeship and management training programs have largely disappeared

Young people taking unpaid internships

In some large organizations a staggering two thirds of vacancies staffed externally

Not enough on-the-job education: Organize work so that employees are given projects that help them learn new skills

A Skills shortage or a Training shortage?

Dr. Peter Capelli at Wharton: real culprits are employers themselves.

With an abundance of workers to choose from, employers are demanding more of job candidates than ever before.

Must be able to fill a role right away, without any training or ramp-up time.

Jobs can be organized in many different ways so that candidates who have very different credentials can do them successfully.

During the Silicon Valley tech boom of the 1990s, Only 10% of the people in IT jobs had IT-related degrees.

Is a master’s necessary or could someone with a little training do the job pretty well?

Need to focus internally, succession planning

In the US, apprenticeship and management training programs have largely disappeared

Young people taking unpaid internships

In some large organizations a staggering two thirds of vacancies staffed externally

Not enough on-the-job education: Organize work so that employees are given projects that help them learn new skills

Possible Strategies for Coping with a Labour/Skills Shortage

Short-term Strategies

Increase pay and benefits

Increase work hours and productivity of existing worker

More focused employee training

Flexible work arrangements, use of technology

Medium-Long Term

Bring back aspects of apprenticeship for specialized niches

Work with educational institutions

Better integration of immigrants, recognition of foreign credentials

Redefine workforce to adopt more external talent

Use of outsourcing, freelancing for core functions

Partnership and Joint Ventures

Direct Investment Abroad – Access talent pool overseas

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Any Questions?