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Recent Development in the Canadian Economy
 

Recent Development in the Canadian Economy

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Bank of Canada Senior Representative Dr. Farid Novin's Presentation at the FVCAA Keynote event on November 1st, 2012

Bank of Canada Senior Representative Dr. Farid Novin's Presentation at the FVCAA Keynote event on November 1st, 2012

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  • Chart 2
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  • The one bright spot for the forest industry is the growth in Chinese demand for softwood lumber over the past few years. This growth is the result of efforts by both the industry and the BC government to educate Chinese builders in the use of lumber for building construction and in working with Chinese authorities to change building codes.China is now the number two destination for BC forestry exports, which includes pulp & paper products, exceeding Japan for the first time.
  • Table updated
  • Updated 17 Jan 5 pm
  • Updated 18 Jan 10 a.m. – 2012Q2

Recent Development in the Canadian Economy Recent Development in the Canadian Economy Presentation Transcript

  • Recent Developments in the CanadianEconomyOctober 2012 Dr. Farid Novin Bank of Canada
  • The Views of Farid Novin presented today may not represent theviews of the Bank of Canada 2
  • Outline  World Economy  The United States  Canada and BC 3
  • The World Economy 4
  • Chinese growth is decelerating towards a moresustainable level Real GDP Y/Y % change 16 14 12 10 8 6 4 2 0 2001 20032000 2002 2004 2005 2006 2007 2008 2009 2010 2012 2011 China IndiaSource: IMF 5
  • The recovery among major economies continues to be uneven Real GDP Y/Y % change 6 4 2 0 -2 -4 -6 -8 -10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2011Source: IMF, Stats Canada UK USA Japan Germany Canada 6
  • Central banks in advanced economies have maintainedpolicy interest rates at historically low levels Policy interest rates, daily data % 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2008 2009 2010 2011 2012 Canada United States Euro area JapanNote: On 5 October 2010, the Bank of Japan changed the target for its policy rate from 0.1 per cent to a range of 0.0 to 0.1 per cent. The U.S. FederalReserve has been maintaining a target range for its policy rate of 0.0 to 0.25 per cent since 16 December 2008. Last observation: 19 October 2012Sources: Bank of Canada, U.S. Federal Reserve, European Central Bank and Bank of Japan 7
  • A critic’s view of a modern day central banker 8
  • Some central banks have expanded their balancesheets furtherCentral bank assets relative to GDP, quarterly data % 35 30 25 20 15 10 5 02006 2007 2008 2009 2010 2011 2012 Bank of Canada Federal Reserve European Central Bank Bank of England Bank of JapanSources: Bank of Canada, Statistics Canada; U.S. Federal Reserve, European Central Bank, Bank of England, Bank of Japan, U.S. Bureau of Economic Analysis, Last observation: 2012Q2Statistical Office of the European Communities, U.K. Office for National Statistics; Bank of Japan, and Cabinet Office of Japan. 9
  • US economy 10
  • US GDP and Final Domestic Demand 8 Volume, Y/Y % Change 6 4 2 0 -2 -4 -6 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2011 GDP FDDSource: US Bureau of Economic Analysis 11
  • U.S. real GDP growth is projected to remain relativelymodest compared with previous U.S. recoveriesU.S. real GDP across economic cycles; start of recession = 100, quarterly data Index 140 Start of the recession 130 Years before the 120 Years after the start of the start of the recession recession 110 100 90 -2 -1 0 1 2 3 4 5 6 7 U.S. current cycle Base-case projection The Big Five modern financial crises Range of past U.S. recessions (1948 onward)Note: The Big Five modern financial crises, as described in Reinhart and Rogoff (2008), are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992).See C.M. Reinhart and K.S. Rogoff, "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison." American Economic Review: Papers and Proceedings 98, no.2 (2008): 339-44.Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development, and Bank of Canada projections 12
  • Fiscal consolidation is expected to exert a significantdampening effect on U.S. real GDP growthContribution to real GDP growth, percentage points, annual data % Percentage points 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 2011 2012 2013 2014 GDP growth GDP growth excluding fiscal policy Estimated contribution from fiscal policy (right scale) Note: The contribution of fiscal policy to growth includes both direct government expenditures and the indirect effects on other components of aggregate demand. Sources: U.S. Bureau of Economic Analysis and Bank of Canada calculations and projections 13
  • US Home Prices Stabilize US Home Price Indices, Jan. 2000=100 250 S&P Case Shiller 10 City 230 Composite 210 CoreLogic National 190 CoreLogic National excl 170 Distressed sales 150 130 110 90 70 50 90 92 94 96 98 00 02 04 06 08 10 12Source: Standard & Poors and CoreLogic ; from the Business Council of British Columbia Latest: July, June for Case Shiller 14
  • Canada and B.C. 15
  • Canadian GDP and Final Domestic Demand (volume, y/y % change) 6 4 2 0 -2 -4 -6 2001 2012 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GDP FDDSource: Statistics Canada 16
  • Real GDP is expected to grow at a moderate pace inCanada % 8 6 4 2 0 -2 -4 -6 -8 -102008 2009 2010 2011 2012 2013 2014 Quarter-over-quarter percentage change in real GDP, at annual rates Base-case projection Year-over-year percentage change in real GDP Sources: Statistics Canada and Bank of Canada calculations and projections 17
  • A small amount of excess supply remains in the Canadian economy % % 3 70 2 60 1 50 40 0 30 -1 20 -2 10 -3 0 -4 2007 2008 2009 2010 2011 2012 Conventional measure of the output gap*** (right scale) Some and significant difficulty* (left scale) Labour shortages** (left scale)*Response to Business Outlook Survey question on capacity pressures. Percentage of firms indicating that they would have either some or significant difficulty meeting an unanticipated increase in demand/sales.**Response to Business Outlook Survey question on labour shortages. Percentage of firms reporting labour shortages that restrict their ability to meet demand.***Difference between actual output and estimated potential output from the Bank of Canadas conventional measure. The estimate for the second quarter of 2012 (indicated by *) is based on a projected increase inoutput of 1.0 per cent (at annual rates) for the quarter. Last observation: 2012Q3Source: Bank of Canada 18
  • What Are the Policy Implications?  Target overnight rate held at 1 per cent  Forward-looking statement: “Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.” Source: Bank of Canada Press Release, October 23rd 2012 19
  • Economic conditions in BC expected remain slightly better than the Canadian average Real GDP growth by Province (%) Real GDP growth in BC (Y/Y) Province 2011 2012(f) 2013(f) Alberta 5.2 3.4 3.1 4.7% 3.8% 3.8% Sask 4.8 2.9 3.1 3.2% 2.8% 2.9% Man 1.1 2.5 2.4 2.6% 2.2% 2.4% BC 2.9 2.1 2.4 Canada 2.6 2.0 2.2 0.5% Ontario 2.0 2.0 2.0 PEI 1.1 1.6 1.6 NS 0.3 1.5 2.1 Que 1.7 1.4 1.7 -2.2% NB 0.1 1.2 1.7 2012(f) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2013(f) Nfld 2.8 1.1 2.8Sources: Stats Canada, (f) avg of private sector forecasts 20
  • Net Government Debt as a Percentage of GDP Estimate for 2012-2013 Que Ont NS NB Man Nfld BC Sask Alta -10 0 10 20 30 40 50 60Source: RBC Economics; BC Ministry of Finance, First Quarterly Report, September 2012. 21
  • Employment is now above pre-recession levels in B.C. Index 2006Q1=100 112 110 108 106 104 102 100 98 96 94 92 2006 2007 2008 2009 2010 2011 2012 B.C. CanadaSource: Statistics Canada 22
  • BC Housing Starts StabilizeSeasonally Adjusted Annual Rate 45 40 35 30 25 20 15 10 5 0Source: Canadian Mortgage and Housing Corporation, September 2012 23
  • Strong Capital Investment Spending in BCBC Capital Investment, $ Billions 60 50 40 30 20 10 0 2002 2004 2006 2008 2010 2012(f) Source: Statistics Canada, Public and Private investment intentions f: forecast 24
  • Commodity prices Index 2006=100 600 500 400 300 200 100 0 2007 2008 2000 2001 2002 2003 2004 2005 2006 2009 2010 2012 2011 Oil Copper Lumber Nat. GasSource: Bank of Canada 25
  • BC Exports by Destination S.A, $Millions 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2008 2009 2010 2012 2011 Rest of World USASource: BC Statistics 26
  • Exports to China Now SlowingGrowth in Exports to China 70% 60% 50% 40% 30% 20% 10% 0% 2010 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012YTD -10% Total Excluding Coal Source: BC Stats 27
  • Chinese demand for BC softwood lumber has expandedrapidly but slowed recentlyGrowth in value of softwood lumber Share of BC softwood lumberexports to China 120% exports by value(y/y% change) 112% (%) 80 100% 70 80% 78% 60 80% 50 62% 40 60% 51% 30 40% 20 10 20% 20% 2000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012YTD 2011 -9.5% 0% 2011 2006 2007 2008 2009 2010 2012YTD -20% United States Japan China Source: BC Stats 28
  • BC Population Growth SlowsBC Population Growth, % 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 91 93 95 97 99 01 03 05 07 09 11 Source: Statistics Canada 29
  • Risks to the BC Economy  Global uncertainty – State of the Eurozone, and slow US growth – Chinese demand – Lower commodity prices  Competitiveness challenges – Return to the PST – Political uncertainty – Finding skilled labour 30
  • Table 1: Projection for global economic growth 31
  • Table 2: Contributions to average annual real GDP growthPercentage pointsa 32
  • Table 3: Summary of the base-case projection for Canadaa 33