BC Recovery Continues Amid Greater Uncertainty Presented to: Canadian Association of Equipment...
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BC Recovery Continues Amid Greater Uncertainty Presented to: Canadian Association of Equipment Distributors, BC April 7, 2011 Ken Peacock Director Economic Research
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Transcript of BC Recovery Continues Amid Greater Uncertainty Presented to: Canadian Association of Equipment...
BC Recovery Continues Amid Greater Uncertainty
Presented to: Canadian Association of Equipment Distributors, BC
April 7, 2011
Ken Peacock Director Economic Research
A Few Global Themes for 2011 A Few Global Themes for 2011
Emerging markets driving global growthUS recovery accelerates» additional monetary easing (QE2) and accommodative US gov’t fiscal policy
Crisis continues to unfold in Europe (sovereign debt and banking system)Middle East turmoil creates a “new” geo-political risk
Commodity prices stay high » food, fuel, minerals/metals, potash, etc.
Some emerging markets (esp. China) struggling to manage inflation Global economic rebalancing will continue (a multi-year process)Earthquake and tsunami in Japan
2
World Economic Forecast
Source: Scotiabank Global Economic Research, April 1, 2011.
Projected growth (per cent)
2010 e 2011 f 2012 f
United States 2.9 2.9 2.7
Euro zone (EU 16) 1.7 1.4 1.6
Japan 3.4 1.0 2.9
China 10.3 9.5 9.7
India 8.7 8.5 8.8
World 4.9 4.4 4.4
3
China Looming Larger
World’s #1 exporterSurpassed Japan as the second biggest national economy Accounts for 12-15% of global importsLargest foreign currency reserves ($2.5 trillion US)In most years, #1 destination for inbound direct foreign investmentBiggest global consumer of coal, steel, copper, cement, iron ore, aluminum, etc.Has eclipsed the US as the world’s largest market for new vehicle sales
4
US Near-Term Prospects US Near-Term Prospects BrightenBrighten
Most forecasters now expect growth to exceed 3% in 20112010 fiscal and monetary policy actions expected to add one percentage point to growth this yearConsumer spending is gaining traction Business investment on the rise» low interest rates, strong balance sheets, impact of federal tax incentives
Housing markets remain weak» housing starts climb to 680,000 this year, up from 590,000 in 2010» prices falling again in many urban markets
Longer term, US faces huge fiscal problems – but these don’t matter much in 2011
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US Job Picture (finally) Improving
US Employment, m/m change, thousands
-1000
-800
-600
-400
-200
0
200
400
600
05 06 07 08 09 10 11
Source: US Bureau of Labour Statistics, seasonally adjusted.
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Latest: March 2011
But an Unusually Deep and Slow Recovery7
Source: Calculated Risk.
Slow Recovery – US Home Building
US Housing Starts, seasonally adjusted annual rate, thousands
0
500
1,000
1,500
2,000
2,500
99 00 01 02 03 04 05 06 07 08 09 10 11
Source: US Bureau of Labour Statistics, seasonally adjusted.
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Latest: January 2011
Global Balance of Economic Power is Shifting
US 14,256
China 8,888
Japan 4,138
India 4,752
Germany 2,984
Russia 2,687
UK 2,257
France 2,172
Brazil 2,020
Italy 1,922
China 59,475
India 43,180
US 37,876
Brazil 9,762
Japan 7,664
Russia 7,559
Mexico 6,682
Indonesia 6,205
Germany 5,707
UK 5,628
Ten Biggest Economies (US$ GDP, billions)*
2009 2050
Source: PWC, The World in 2050 (2011). * Measured in constant 2009 US dollars, at purchasing power parity exchange rates
But…Don’t Underestimate the United States!
46,931
40,125 39,110
34,79833,777
25,000
30,000
35,000
40,000
45,000
50,000
US Australia Canada UK Japan
Source: Economist Intelligence Unit.
Despite its recent troubles, the US remains the richest nation among the main advanced economies, with a per capita GDP 20% higher than Canada’s.
GDP Per Capita, 2010 US$, measured at purchasing power parity)
10
Canadian Picture Canadian Picture
Upward revision to Canadian growth for 2011 reflects improved US outlook and strength in commodities Growth stronger in the West and NewfoundlandHigh household debt a worry Canadian housing markets flat in 2011 Total employment almost back to pre-recession peak » …but private sector jobs still below previous high
Policy interest rates to rise in second half of 2011 but will stay low Government fiscal restraint will start to weigh on growthCanadian dollar also weighing on exports
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Canada/US Comparisons
Source: IMF, World Economic Outlook.
Government Debt,% of GDP
40
50
60
70
80
90
100
110
120
05 03 07 08 09 10 11 12 13 14 15
Canada US
Fiscal Balance, % of GDP
-14-12-10
-8-6-4-2024
05 06 07 08 09 10 11 12 13 14 15
Canada US
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Canadians Becoming Enthusiastic Borrowers
Source: TD Economics.
Household Debt as a Share of Personal Disposable Income, %
60
80
100
120
140
160
180
1990 1995 2000 2005 2007 2010
Canada
US
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Interest Rates Will Move Higher
Canadian interest rates, monthly with quarterly forecasts, %
0
1
2
3
4
5
6
7
00 01 02 03 04 05 06 07 08 09 10 11 12
10 year GoC bond yield
3-month T-bill
Source: Bank of Canada, Scotiabank Economic Research and TD Economics for forecasts.
forecast
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Surging Loonie Re-Shaping the Competitive Landscape
Canada - US Exchange Rate, weekly with quarterly forecasts, US cents/Cdn$
60
65
70
75
80
85
90
95
100
105
110
00 01 02 03 04 05 06 07 08 09 10 11 12
noon rateTD forecastRBC forecast
Source: Bank of Canada, TD Economics & RBC for forecasts.
forecast
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Canadian Economic Outlook
2010 2011 2012
Real GDP (%) 3.1 3.1 2.6
Real consumer spending (%) 3.4 3.0 2.7
Real business non-residential investment (%) 5.2 10.9 7.6
Employment (%) 1.4 1.4 1.1
Housing starts (000) 190 175 175
Inflation (all items CPI, %) 1.8 2.5 2.3
Source: Scotiabank Global Economic Research, April 1, 2011.
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BC Background BC Background
Economy recovering from 2008-09 downturn (but mixed)Brighter US outlook is positive for 2011 Asia providing a welcome lift Some pluses/differentiators for BC vs Canada…» gateway economy (esp. important to Metro Vancouver) » commodities (coal, minerals/metals, pulp, lumber is picking up)» in-migration and population growth foster ongoing demand for housing
and consumer goods/services » relatively solid fiscal/tax setting» less dependent on US than other provinces
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(Very) Modest Job Rebound
BC Employment Growth, annual % change
-4-3-2-1012345
05 06 07 08 09 10 11
Source: Statistics Canada.
BC Unemployment Rate, S.A.,%
3
4
5
6
7
8
9
10
05 06 07 08 09 10 11
Latest: February 2011
1.7% job growth in 2010
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Private Sector Employment Lagging
Source: Statistics Canada.
BC Employment by Class of Worker, Indexed 2003=100
95
100
105
110
115
120
125
2003 2004 2005 2006 2007 2008 2009 2010 2011
Private Sector Employees
Public Sector Employees
16,500 more jobs in the public sector than in July 2008
63,000 fewer jobs in the private sector than in March 2008
Latest: February 2011
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Consumers Hesitant to Spend?
BC Retail Sales, S.A., millions $
3500
3700
3900
4100
4300
4500
4700
4900
5100
04 05 06 07 08 09 10 11
Source: Statistics Canada. Latest: January 2011
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Housing Sales Picking Up, but Still Soft
BC Housing Sales and New Listings S.A., units
1000
3000
5000
7000
9000
11000
13000
15000
17000
04 05 06 07 08 09 10 11
sales
listings
Source: CREA.
Change in Average Price of Homes Sold in BC, %
-15
-10
-5
0
5
10
15
20
25
04 05 06 07 08 09 10 11
Latest: February 2011
Housing Starts Flat
BC Housing Starts S.A., units
0
500
1000
1500
2000
2500
3000
3500
4000
4500
00 01 02 03 04 05 06 07 08 09 10 11
Source: Statistics Canada. Latest: February 2011
22
Construction Activity Easing
BC Building Permits S.A., millions $
0
100
200
300
400
500
600
700
800
900
00 01 02 03 04 05 06 07 08 09 10
non res (with trend)
residential (with trend)
Source: Statistics Canada. Latest: January 2011
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Exports Climb…After Slumping in 2009
Annual BC Exports, billions $
0
5
10
15
20
25
30
35
02 03 04 05 06 07 08 09 10
US Japan China rest
Source: BC Stats.
Monthly Exports S.A., millions $
1,5001,7001,9002,1002,3002,5002,7002,9003,1003,300
06 07 08 09 10 11
total
Latest: January 2011
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24 % decline
BC Exports by Commodity, billions $
0
2
4
6
8
10
Wood Prod Pulp &Paper
MetallicMineral
Prod
Natural Gas
Coal Mach. &Equip.
Agriculture
2004 2007 2008 2009 2010
Resources Dominate BC’s Exports
Source: BC Stats.
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China and Other Markets Driving Export Growth
BC International Merchandise Exports, S.A. millions $
700
900
1,100
1,300
1,500
1,700
1,900
2,100
06 07 08 09 10 11
US
Rest of World
Source: BC Stats. Latest: January 2011
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BC Wood Product Exports to China, millions $
0
100
200
300
400
500
600
700
800
900
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
China Buying More Wood!
Source: Statistics Canada.
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BC Pulp and Paper Exports to China, US, millions $
0
20
40
60
80
100
120
140
160
180
Feb.2009
Jan.2010
Jan.2011
China
United States
China Buying More BC Pulp Than the US
Source: Statistics Canada.
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BC Wood Product Exports to US, millions $
100120140160180200220240260280300
Feb.2009
Jan.2010
Jan.2011
Little Improvement for US Wood Sales
Source: Statistics Canada.
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BC Growth Eases Slightly
actual forecast
2009 2010 2011f 2012f
Real GDP -1.8 3.2* 2.8 2.9
Employment -2.4 2.1 1.9 2.2
Retail sales -5.7 6.0* 5.0 5.0
Corporate profits -30.0 15.0* 10.0 10.0
Housing starts (units) 16,100 27,000 24,000 25,000
Source: Business Council, Statistics Canada for history. *estimates
BC Economic Forecast – BCBC
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HST
Reduces business costs (almost $2 billion)» lowers the cost of investing in machinery, equipment, structures,
technology, etc. » improves competitive position of exporters
Decreased compliance costs – single tax system
More efficient tax» avoids cascading tax effect of PST» a more stable and growing tax base
$1.6 billion in “transition” funding from Ottawa
A few sectors adversely affected
Business savings passed on to consumers
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Equipment Sales: Reasons for Optimism
Business investment poised to rise Transportation sector – Gateway activity Mining industry expanding» construction / pre op: Mt. Milligan, Copper Mountain, Quintette » final permitting: Tusequah Chief, Kitsalt, Red Chris
Forestry: pulp prices strong; lumber exports growing
Agriculture exports – steady growth
High level of major project investment ($62 billion underway now)
Selected projects: Rio Tinto Kitimat expansion, Kitimat LNG terminal, Highway 37, transmission lines, Site C, IPPs
Sustained levels of immigration / population growth
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Risks and Negative Factors
Strong Canadian dollar is impinging on the competitiveness of trade-exposed industries and contributing to current account deficit
Uncertainty over HST
High household debt burdens
Recent job market wobbles / soft domestic economy – blip or trend?
End of government “economic stimulus”
Escalating energy costs (fuel, electricity), geopolitical instability
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Summary and Key Messages Summary and Key Messages
Global economy growing at a reasonable pace» led by emerging economies» US near-term growth prospects have improved, but housing
recovery will be slow » balance of power / economic growth shifting
BC economy is in decent shape » average growth over next couple years » export sector stronger, domestic side softer in 2011» resource industries remain important
Sound fiscal setting (both federal and provincial), although spending restraint a drag on growthBC is positioned to succeed, but deliberate and proactive policy work is necessary
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