Election May 14 2013 Marl CarneyEconomic Outlook B of Canada Apr 27 2012

1. E i O tl kEconomic Outlook
OttawaChamberofCommerce/OttawaBusinessJournal:Mayor’sBreakfastSeries
Ottawa,Ontario
27April2012
MarkCarneyMarkCarney
Governor

2. Agenda
Three global forces
The consequences for Canada
The current outlook
What must be done?at ust be do e
2

3. Global Forces:Global Forces:
The Rise of Emerging Market EconomiesThe Rise of Emerging-Market Economies
3

4. Very robust growth in emerging markets
Real GDP, Index 2007Q1=100, quarterly data
150
160
150
160
Index Index
Real GDP, Index 2007Q1 100, quarterly data
130
140
130
140
110
120
110
120
90
100
2007 2008 2009 2010 2011
90
100
4
China Emerging market and developing economies
Last observation: 2011Q4
Note: 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.

5. Very robust growth in emerging markets
Real GDP, Index 2007Q1=100, quarterly data
150
160
150
160
Index Index
Real GDP, Index 2007Q1 100, quarterly data
130
140
130
140
110
120
110
120
90
100
2007 2008 2009 2010 2011
90
100
5
U.S. Canada China Emerging market and developing economies
Last observation: 2011Q4
Note: 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.

6. Emerging markets now account for bulk of growth
Contribution to global growth
100
%
Contribution to global growth
Percentage contributions to global real GDP growth, annual data
60
80
20
40
2000 2011
0
20
6
Advanced economies Emerging and developing economies
Last observation: 2011Source: International Monetary Fund World Economic Outlook, Bank of Canada calculations

7. Massive, rapid urbanization
Change 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 forecast
Source: United Nations - World Urbanization Prospects

8. Global Forces:Global Forces:
Elevated Commodity PricesElevated Commodity Prices
8

9. Non-agriculture commodity prices up10-fold since WWII
Real commodity prices in the post-war period
1600600
Real commodity prices in the post war period
1946 = 100
IndexIndex
Average industrial metals and energy
800
1000
1200
1400
400
500
Average industrial metals and energy
prices (2002-2011, right axis)
Average industrial metals and energy
prices (1971-2001, right axis)
200
400
600
800
200
300
prices (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

10. Commodity prices remain elevated
IndexBank 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 2012
80
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

11. Large gap between Canadian and global oil prices
0
10
US$/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 2012
Note: 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

12. Global Forces:Global Forces:
The Great DeleveragingThe Great Deleveraging
12

13. Sharp increase in debt across developed world
Percentage pointsChanges in household, corporate and net government debt
200
250
g pChanges in household, corporate and net government debt
as percentages of nominal GDP from 1980 to 2010
150
200
100
Canada Germany Australia United France United Japan Greece Spain Italy Portugal
0
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)

14. 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 ratio
Percent 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

15. Weakest U.S. recovery since Great Depression
IndexU.S. Real GDP across economic cycles
135
145
U.S. Real GDP across economic cycles
Start 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 7
65
75
of 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

16. Weakest U.S. recovery since Great Depression
IndexU.S. Real GDP across economic cycles
135
145
U.S. Real GDP across economic cycles
Start 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 7
65
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
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

17. Weakest U.S. recovery since Great Depression
IndexU.S. Real GDP across economic cycles
135
145
U.S. Real GDP across economic cycles
Start 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 7
65
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 crises
U.S. current cycle Great Depression
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

18. Rebuilding U.S. wealth will take a long time
RatioHousehold net worth to disposable income US$
6.1
6.3
6.5
RatioHousehold 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 2011
4.5
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

19. Rebuilding U.S. wealth will take a long time
RatioHousehold net worth to disposable income US$
6.1
6.3
6.5
RatioHousehold 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 2011
4.5
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

20. Euro-area recovery was weak, is over
Euro area real GDP across economic cycles
115
IndexEuro area real GDP across economic cycles
Start of recession = 100, quarterly data
Start of the recession
105
110
95
100
-2 -1 0 1 2 3 4 5 6
90
Years after the start
of the recession
Years before the
start 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

21. 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 2012
0
1
21
Germany France Italy Spain
Last observation: 25 April 2012Source: Bloomberg

22. A balance of payments problem
IndexUnit 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 2011
90
Germany France Portugal Ireland Italy Spain
22
Germany France Portugal Ireland Italy Spain
Last observation: 2011
Sources: Deutsche Bundesbank, Institut national de la statistique et des études économiques, Instituto Nacional de Estatistica, Central Statistics Office, Istituto
Nazionale di Statistica and Instituto Nacional de Estadistica

23. Private deleveraging, public leveraging
Percentage point
Household and government debt
30
40
g p
change, 2007 to 2011
Household 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

24. Private deleveraging, public leveraging
Percentage point
Household and government debt
30
40
g p
change, 2007 to 2011
Household 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

25. Consequences for CanadaConsequences for Canada
25

26. 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 2011
90
92
26
Canada United States Euro area Japan
Last observation: 2011Q4Sources: Statistics Canada, U.S. Bureau of Economic Analysis, Eurostat, and Japan Statistics Bureau

27. Canada has more than recovered all jobs lost
IndexTotal 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 2012
92
94
27
Canada United States Euro area Japan
Last observations: 2011Q4 and 2012Q1
Note: 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

28. Weakest post-war export recovery
IndexComparison 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
120
downturnthe downturn
-1 0 1 2 3 4 5 6
80
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

29. Canada’s export performance second worst in G-20
% h i h f ld t 2000 t 2010
Japan
France
Canada
U.K.
% change in share of world exports, 2000 to 2010
Indonesia
Germany
Italy
Mexico
U.S.
Japan
Australia
Saudi Arabia
Korea
Argentina
South Africa
Indonesia
China
India
Turkey
Russia
Brazil
Australia
29
-50 0 50 100 150 200
China
Source: International Monetary Fund
%

30. 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. dollar
Relative wages
30
Relative wages
Relative productivity
Percentage 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

31. Canada’s trade directed toward slow growing economies
Average growth rates 2000 2010 annual data
10
12
%Average growth rates 2000-2010, annual data
8% of exports
6
8
85% 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.

32. Canada has relied on domestic demand
Evolution of real private domestic demand since pre-recession peak
110
Index
Evolution of real private domestic demand since pre recession peak
Index, 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 16
90
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

33. 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 2012
2.5
3.0
33
Effective business interest rate Effective household interest rate
Last observation: 13 April 2012Source: Bank of Canada calculations

34. Share of household expenditures in GDP now high
RatioQuarterly data
0.66
0.68
Quarterly data
0.62
0.64
0.58
0.60
1975 1980 1985 1990 1995 2000 2005 2010
0.56
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

35. Canadians now more indebted thanAmericans and British
RatioAggregate debt-to-income ratio
1.6
1.7
1.8
Aggregate 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

36. The Current OutlookThe Current Outlook
36

37. 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 3.7
world
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

38. Private domestic demand to continue driving growth
Percentage 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

39. Some slack remains in labour market
Monthly data, 3-month moving average
309
%%
Monthly data, 3 month moving average
26
28
7
8
22
24
6
7
205
2008 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 average
Source: Statistics Canada Last observation: March 2012

40. Robust business investment to continue
Comparison of real business fixed investment across economic cycles;
115
120
Index
Comparison 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 6
75
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

41. Business more optimistic about future sales
Balance 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 increase
at 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

42. 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 components
Sources: Statistics Canada and Bank of Canada calculations and projections

43. What Must Be DoneWhat Must Be Done
43

44. 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

45. 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

46. Canada
Maintain price stability through flexible inflation targeting
Keep financial markets liq id and operatingKeep financial markets liquid and operating
Apply lessons ofAmerican and European crisesppy 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

47. 47