2012 Canada Euroweek Nbc Sponsored Yearly Report


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Canada, AAA, Quebec, Ontario, Alberta, British Columbia, CMHC, Provinces

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2012 Canada Euroweek Nbc Sponsored Yearly Report

  1. 1. June 2012 Ontario Manitoba British Columbia Canada Housing Trust Alberta Quebec Canada Investor Relations Series Interviews with Selected Public Sector Borrowers Sponsor000 Cover Canada IR 2012.indd 1 11/06/2012 19:17
  2. 2. Euroweek Euroweek Canada: Reaping the Canada: Reaping the benefits of past reforms benefits of past reforms by Krishen Rangasamy, Senior Economist by Krishen Rangasamy, Senior EconomistCanada’s economic fortunes have rarely been There are some concerns from the central bank instrumental. Population growth for people The outlook for investment in real assets isin such sharp contrast with other OECD nations. about household debt accumulation which it aged 20-44, the age cohort generally associated positive, but so is the potential for a ramp up inWhile the latter have generally struggled views as “the biggest domestic risk” – thanks to with marginal demand for a residential asset, investment in Canadian financial assets. Canada’sto achieve economic growth and meet deficit rising rates of home ownership, the oft-mentioned has picked up significantly since 2007 and is government bonds have never looked as good intargets, particularly in Europe, Canada’s growth debt to disposable income ratio is now at a record projected to remain positive through the next a shrinking AAA universe. With the public sectoris proceeding at a decent pace. As a result, 150%. Currently, debt servicing is quite decade, in sharp contrast with the rest of the OECD. well on track to balance the budget and reducingthe federal and most provincial governments manageable for most households with mortgage overall debt over the coming years, Canada’s fiscal Canada: Why are home prices outperforming the OECD?are well on their way towards balancing their payments as a percentage of disposable income Real house price growth since 2007Q1 Annual growth for population rectitude shines when compared to countriesrespective budgets. remaining close to the average of the last decade IRL -42.2 1.4 % aged 20-to-44 experiencing missed deficit targets and a growing USA -37.9 despite home prices soaring over 40% in the last DNK -25.8 1.2 debt load.It has not always been that way. Less than two ESP -23.0 1.0 …remains supported by positive demographics ten years. Thank record low mortgage rates GRC GBR -22.4 -13.3decades ago, Canada was grappling with similar ITA -12.3 The surge in 0.8 Canadian general government net debt relatively low for that. NZL NLD -10.1 -7.9 home prices in Canada … 0.6 At year end, as % of GDP (IMF projections for 2012 to 2017)challenges to those currently facing several JPN KOR -7.7 -1.4 0.4 Canada FRA 0.5European economies, with massive debt and The risk, of course, is a sudden sharp increase in DEU FIN 1.2 3.1 0.2 0.0 90 % of GDP 2011 BEL 80deficits culminating in an S&P ratings downgrade. interest rates. That scenario is highly unlikely in AUS 7.9 9.2 -0.2 Canada: 33.3 SWE 10.1 OECD 70 U.S.: 80.3Canada’s leadership at the time saw opportunity our view. While rates are set to rise, they should NOR CHE 10.6 13.4 -0.4 60 Eurozone: 68.4 CAN 18.2 -0.6 OECD: 72.4in adversity, and implemented major structural do so very gradually. The BoC would be aware ISR 40.5 % -0.8 50 -50 -30 -10 10 30 1990 1995 2000 2005 2010 2015 2020 40reforms that were designed to be sustainable and of the threat posed by an overshooting currency NBF Economy & Strategy (data via OECD, Statcan, Teranet - National Bank, United Nations) 30 Canadatherefore credible. Those crucial policy actions should the overnight rate stray too far from the 20 U.S. 10 Eurozonecontinue to bear fruit today. A well-managed Fed Funds rate which itself is destined to remain So notwithstanding temporary dips, residential OECD 0economy, vast natural resources and favourable near zero for the next few years. Moreover, the investment should generally remain in decent 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016demographics all boost Canada’s credentials as a BoC would prefer an orderly ramp down in debt shape. Non-residential investment should also Source: IMF, Fiscal Monitor April 2012country that is open for business and with solid rather than provoke, via aggressive rate hikes, a be well supported. According to a recent Statisticsprospects for continued prosperity. disorderly de-leveraging (the latter tends to be Canada survey, non-residential investment is Foreigners will also be enticed by the stable hazardous to the economy if recent US experience expected to grow 7.2% or $19.8 billion this year. investor base for our government bonds, givenThe Bank of Canada now stands alone among is any guide). There are already promising signs that over 40% of gross government debt is held bymajor world central banks in considering tighter on that front, with consumer credit growth Canada: Investment intentions remain positive in 2012 domestic institutional investors in Canada.monetary policy. The BoC’s stance rests on an falling on its own to the lowest levels in almost Non-residential investments (2012: intended) 2012 intended non-residential investment growth, $B and % Canada: A stable investor base for government bondsimproving economy which has allowed both $ billion $ billion two decades. 300 9 Oil & gas Holdings of government debt by AAA club could become even more selectCanadian output and employment to recover 280 260 Total 8 14.8% …oil & gas domestic institutional investors* Private sector accounting for CANfrom the Great Recession and to rise to more than That said, residential credit growth remains strong 240 220 7 except oil & gas more than 40% 4.7% SWE Australia rating AAA outlook Stable of the increase Canada AAA Stable5% above 2007 levels, in sharp contrast to the and is one of the reasons why the Canadian 200 6 Public entreprises FRA Denmark AAA Stable 180 5 Finland AAA Negativeperformance stateside. housing market continues to outperform. With 160 4 17.3% GBR Germany AAA Stable Private sector USA Hong Kong AAA Stable 140 Canadian housing prices surging in recent years, 120 3 ITA Liechtenstein AAA Stable Canada: Recovery has been smooth relative to the US Luxembourg AAA Negative Real GDP Employment there are concerns about a sharp correction in 100 80 2 Public DEU Netherlands AAA Negative Non-residential investments expected admin. Norway AAA Stable ESP 106 Index = 100 (Jan 2007) 106 Index = 100 (Jan 2007) the pipeline. While we do not rule out temporary 60 to reach a new high in 2012… 1 1.1% NLD Singapore AAA Stable 105 40 Sweden AAA Stable 105 104 price declines in some cities and some segments 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 0 0 10 20 30 40 Switzerland AAA Stable 104 NBF Economy and Strategy, (data from Statistics Canada) % of gross general government debt United Kingdom AAA Stable 103 103 of the housing market (condo prices in Toronto 102 * Pension, insurance and mutual funds 102 101 and Vancouver come to mind as potential risk That is a new record, for both total non-residential NBF Economy & Strategy (data via IMF April 2012 Fiscal Monitor, Standard & Poors) 101 100 areas), the outlook remains positive for Canadian investments and those of the private sector. More That, combined with well anchored inflation 100 99 99 98 housing as a whole. than 40% of the growth is expected to come from expectations and fiscal discipline, bode well for 98 97 oil & gas extraction (+14.8% or $8.3 billion). The Canada’s bond market. Clearly, in Canada’s case, 96 Negative real interest rates and a healthy 97 95 strong showing in business investment will help reforms of the past are gifts that keep on giving. 96 94 labour market have played an important role in 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 offset the impacts related to the end of several supporting housing demand and prices so far, NBF Economy & Strategy (data via Global Insight) federal infrastructure programs. but favourable demographics have also beenThe information in this article is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. National Bank of Canada Financial Marketsis a trademark of National Bank of Canada used under licence. National Bank Financial Inc. is an indirect wholly-owned subsidiary of National Bank of Canada, and is regulated by IIROC anda member of CIPF. National Bank of Canada Financial Inc. and NBF Securities (USA) Corp. are indirect wholly-owned subsidiaries of National Bank of Canada, and are regulated by FINRA andmembers of SIPC. NBF Securities UK is a branch of National Bank Financial Inc. and is regulated by the FSA. Please refer to our full disclosure at http://www.nbcn.ca/disclosure_english.jhtml