tracking economic and financial developments in the current global recession rob wright deputy...
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Tracking Economic and Financial Developments in the Current Global
Recession
Tracking Economic and Financial Developments in the Current Global
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
Rob WrightDeputy Minister of the Department of Finance
International Seminar on Timeliness, Methodology and Comparability of Rapid Estimates of Economic Trends
May 27, 2009
2
• Global Recession
• Impact on Canada
• Economic Action Plan
• The Role of Data in Policy Development
Outline
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.
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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
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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
11
…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
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
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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
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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
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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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• 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
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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
Tracking Economic and Financial Developments in the Current Global
Recession
Tracking Economic and Financial Developments in the Current Global
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
Rob WrightDeputy Minister of the Department of Finance
International Seminar on Timeliness, Methodology and Comparability of Rapid Estimates of Economic Trends
May 27, 2009