the economic outlook in uncertain times
TRANSCRIPT
The Economic Outlook in Uncertain Times
presented to Probus
June 10, 2013
Greg D’Avignon President and CEO [email protected]
Global Growth
Source: Federal Reserve Bank of Philadelphia
2
Weak Post-2009 Recovery for Most OECD Countries (real GDP, annual % change)
2007 2008 2009 2010 2011 2012
US
Source: Eurostat, US Bureau of Economic Analysis.
2007 2008 2009 2010 2011 2012
EU (27)
2007 2008 2009 2010 2011 2012
Germany
2007 2008 2009 2010 2011 2012
UK
3
Two Speed Recovery
Current Projection for the Global Economy (% change in real GDP)
2011 2012 2013 2014
US 1.8 2.2 1.9 3.0
Euro area 1.4 -0.6 -0.3 1.1
Japan -0.6 2.0 1.6 1.4
China 9.3 7.8 8.0 8.2
All of developing Asia 8.0 6.6 7.1 7.3
World 3.9 3.2 3.3 4.0
Source: IMF, World Economic Outlook, April 2013.
5
Central Banks Maintain Exceptionally Low Policy Interest Rates
Source: Bank of Canada.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
08 Q1
08 Q2
08 Q3
08 Q4
09 Q1
09 Q2
09 Q3
09 Q4
10 Q1
10 Q2
10 Q3
10 Q4
11 Q1
11 Q2
11 Q3
11 Q4
12 Q1
12 Q2
12 Q3
12 Q4
13 Q1
13 Q2
US
Canada
Euro Area
Japan
%
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US Economy is Gaining Traction
Mainly positive signs in recent months » stronger job growth, some pick-up in consumer spending » reduced pressure on state/local gov’t finances » corporate balance sheets healthy; improved US competitiveness
Unprecedented monetary policy stimulus (QE plus) is supporting equity, corporate bond and real estate markets as well as consumer purchases of big ticket items
Housing starts likely to > 950,000 this year
Key US risks relate to fiscal policy - debt ceiling; future of federal tax policy; entitlement reform
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American Home Prices Now Rising
-25
-20
-15
-10
-5
0
5
10
15
20
06 07 08 09 10 11 12 13
US Home Price Indices, y/y % change
S&P Case Shiller 20 City Composite CoreLogic National
Source: Standard & Poor's and CoreLogic. Latest: February 2013
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…While Housing Starts Rebound
Source: US Census Bureau, seasonally adjusted data
400
600
800
1000
1200
1400
1600
07 08 09 10 11 12 13
US Housing Starts, SA, thousands
Latest: April 2013
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US Household Formation Rate (annual)
0
200
400
600
800
1000
1200
1400
1600
1986-1990 1991-1995 1996-2000 2001-2005 2006-2010 "normal" rate
Annual US Household Formation, avg. over half-decades (000s)
Source: Harvard Joint Center for Housing Studies.
460,000 gap
10
Canadian Interest Rates Stay at Rock Bottom Levels
0
1
2
3
4
5
6
7
02 03 04 05 06 07 08 09 10 11 12 13
Interest Rates, %
3 month T-bill10 yr Bond Yields
Source: Bank of Canada. Latest: April 2013
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Canadian Economy – Modest Growth and Low Inflation to Persist (annual % change unless noted)
2011 2012 2013 2014
Real GDP 1.6 1.8 1.6 2.3
Employment 1.6 1.2 1.1 1.2
Housing starts (000s) 194 215 175 170
CPI 2.9 1.5 1.1 1.8
T-bill rate in percent (Q4) 1.1% 0.93% 1.0% 1.1%
10-yr government bond rate in percent (Q4) 2.3% 1.8% 2.0% 3.3%
Source: Scotiabank Global Economics, May 30, 2013
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BC Economy: The Basic Story
Economy lost some momentum over the second half of 2012,
Growth should pick up later in 2013, in tandem with some firming in global and US activity
BC election outcome is positive for business confidence/investment
Construction (non-residential) has provided a significant economic boost and should continue to do so
Medium term opportunity for a “northern economic renaissance” – mining, power projects, forestry (recovery), LNG potential
Skill/talent shortages a mounting concern for employers
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Source: Statistics Canada. * 3 month moving average
2220
2240
2260
2280
2300
2320
2340
2010 2011 2012 2013
BC Employment, thousands, S.A.*
Latest: May 2013
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BC Job Growth Stalls
-0.8
3.7
-1.5
9.7
-7.2 -7.9
9.8
-10-8-6-4-202468
1012
VancouverIsland
LowerMainland
ThompsonOkanagan
Kootenay Cariboo NorthCoast
Northeast
Employment Growth, Q1 2008- Q1 2013, %
Employment Below Pre-recession Level in 4 Regions
Source: Statistics Canada.
15
Source: Statistics Canada.
-15
-10
-5
0
5
10
15
2009 2010 2011 2012 2013
BC Retail Sales, Y/Y % change
BC Canada
Monthly data, latest April 2013
Consumer Spending Surprisingly Soft 16
A Big Jump in Cross Border Shopping
0
50
100
150
200
250
300
350
400
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Same-day Canadian Vehicles Returning to BC, Lower Mainland region* thousands, seasonally adjusted
Source: Statistics Canada, BCBC for seasonal adjustment *Douglas, Pacific Highway, Aldergrove, Huntington Latest: February 2013
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Residential Construction Eases
0
10
20
30
40
50
60
05 06 07 08 09 10 11 12 13
BC Housing Starts seasonally adjusted annual rates, 000s units
BC Metro Van
Source: Statistics Canada, all areas. Latest: April 2013
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Net Interprovincial Migration Turns Negative
Source: BC Stats, BCBC for seasonal adjustment.
-10,000
-5,000
0
5,000
10,000
15,000
20,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
BC Net Migration, quarterly seasonally adjusted, persons
Interprovincial International
Latest: Q4 2012
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Non-residential Construction Up from 2010 to 2012
Source: Statistics Canada.
300 400 500 600 700 800 900
1000 1100 1200 1300
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
BC Non-residential Building Permits, millions $
permit values, seasonally adjusted
trend
Latest: Q1 2013
20
Robust Project Investment Activity in BC
Capital cost of ‘major projects’ already underway = $79 billion. Plus another >$100 billion of ‘proposed’ projects identified in the Major Projects Inventory (latter figure includes LNG related projects, oil pipelines and Site C)
Some current/imminent non-residential capital investments of note… » Rio Tinto Alcan smelter modernization ($3 billion) » South Fraser Perimeter Road » Evergreen Line » Port Metro Vancouver capital program » Port of Prince Rupert and Ridley Terminal expansions » YVR expansion/upgrading » Expansion of existing mines, plus some new mines expected to come on stream » Northwest Transmission Line (Highway 37 power corridor) » Other significant BC Hydro capital projects + various IPP projects » Development of new office/retail complexes in urban areas » Hospital upgrades (various regions)
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0
5,000
10,000
15,000
20,000
25,000
00 01 02 03 04 05 06 07 08 09 10 11 12
BC Exports, millions $
BC Exports to Pacific Rim Now Equal to US
Source: BC Stats.
22
Pacific Rim
US
1999 Shanghai Population 12,030,000
2012 Shanghai Population 23,470,000
0
10
20
30
40
50
1992 2012
US Japan China
$241 million
$5.6 billion
China Looming Larger in BC’s Trade
Source: BC Stats.
Share of BC International Merchandise Exports, %
25
-10
0
10
20
30
40
50
BC Alta Sask Man Ont Que NB NS PEI* NL
Government Net Debt to GDP Ratios, %
Source: RBC Fiscal Reference Tables and BC 2013 Budget.
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BC Economic Outlook (annual per cent change unless otherwise indicated)
2012 2013f 2014f Real GDP 1.9 1.6 2.5 Employment 1.7 0.7 1.9
Unemployment rate (%) 6.7 6.5 6.2
Housing starts – all areas (units) 27,000 24,500 25,000
Retail sales 2.8 3.0 4.0 BC CPI 1.3 1.4 1.5
Sources: Statistics Canada and BC Stats; Business Council for forecasts. a – actual f – forecast
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BC Industry Outlook (next 2-3 years)
Positive Outlook Wood products (US housing rebound, Asian market diversification) Energy (LNG) – but production is still several years away Transportation/logistics (continued growth in Asia, US economic recovery, investments in gateway-related assets) Most parts of the non-residential construction industry Engineering, scientific/technical, and environmental services Mining (if the global economy strengthens) Some segments of advanced technology
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BC Industry Outlook (next 2-3 years)
Stable/Less Favourable Outlook Tourism Film and TV production Labour-intensive components of manufacturing Printing/publishing/newsprint Residential construction Real estate (slower population growth) Public sector
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BC Liberal Economic Policy Agenda
Prudent and ‘conservative’ fiscal policy Focus on economic growth and development LNG opportunity Asia Head Offices Other priority sectors identified in the BC Jobs Plan Skills and training
All of this will have to be managed within the framework of an exceptionally tight budgetary framework over the next three years
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Growing Energy Consumption in Asia
Source: BP Energy Outlook 2030, shares are for 2011 consumption.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1990 1995 2000 2005 2010 2011 2015 2020 2025 2030
Energy Consumption by Region, millions tonnes oil equivalent
S & C America Europe & Eurasia
Africa
Middle East
Asia Pacific
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North America
Major shale basins around the world
Medium Term Issues for BC Business
Realignment of global economy towards Asia
Domestic demographic and migration patterns
Growing “social license” challenges around resource and infrastructure development
Skill mismatches and talent shortages
BC’s eroding competitiveness, particularly in light of the return to the PST retail tax
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Shifts in World GDP by Region (PPP exchange rates*)
US 23%
China 17%
India 7% Japan
7%
Euro area 17%
Other OECD 18%
Other non-
OECD 11%
2011
Source: OECD, Looking to 2060: A Global vision of Long-Term Growth, 2012.
* Note that this measure differs somewhat from GDP shares based on current and projected market exchange rates.
US 17%
China 27% India
11% Japan 4%
Euro area 17%
Other OECD 15%
Other non-
OECD 14%
2030
34
EU 29%
US 20% Japan
8%
China 5%
India 2%
Others 36%
2010 The global middle class – in 2010
EU 21%
US 12%
Japan 6% China
13%
India 11%
Others 37%
2020 The global middle class – in 2020
EU 14%
US 7%
Japan 4%
China 18%
India 23%
Others 34%
2030 The global middle class – in 2030
EU 7%
US 3.4%
Japan 2%
China 23%
India 31%
Others 34%
2050 The global middle class – in 2050
Projected Increase in Real Income Per Person 2010-2050
0%
100%
200%
300%
400%
500%
600%
700%
800%
900%
Asian Economies
Source: HSBC Global Research.
39
Demographic Shift
You believe in Santa
You don’t believe in Santa
You are Santa
You look like Santa
Four Stages of Life
41
Share of Canadian population aged 15-64
By 2021, one in four Canadian workers will be 55 or older
Immigration by Province is Shifting
Source: Statistics Canada.
0
10,000
20,000
30,000
40,000
50,000
60,000 19
97
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Immigration by Province, persons
BC Alta Sask
42
-40
-20
0
20
40
60
80
100
2,100
2,200
2,300
2,400
2,500
2,600
2,700
2,800
10 11 12 13 14 15 16 17 18 19 20
BC Workforce Demand and Supply, 000s
Supply less Demand (right scale)DemandSupply
Demand for Workers Set to Exceed Supply
Source: The BC Labour Market Outlook 2010-2020.
43
People without Jobs, Jobs without People
Rick Miner 2012
Higher BC Marginal Effective Tax Rate (average METR rate for all industry sectors, %)
2006 2012 2014
British Columbia 34.4 16.8 27.1
Alberta 23.4 16.2 16.2
Saskatchewan 30.0 24.2 24.2
Manitoba 39.3 26.3 26.3
Ontario 37.8 17.9 17.9
Quebec 30.3 13.8 13.8
Source: Finance Canada estimates.
45
Keeping BC Competitive in a Post-HST World
Maintain low corporate tax rates Streamline/simplify PST administration – to reduce compliance costs As fiscal circumstances allow, expand PST exemptions for business inputs, with a focus on inputs that drive investment and productivity (M&E in all industries, transport., structures, energy/power, etc.) Freeze the carbon tax Examine scope to deploy new tax incentives aimed at boosting productivity-enhancing investments Assess all proposed government policies and regulations through a competitiveness lens, to ensure that decision-makers have relevant information and can better control ‘public sector cost creep’
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