what next for the global economy? · douglas porter, cfa deputy chief economist & managing...

Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets

What Next for the Global Economy?

© BMO Capital Markets www.bmocm.com/economics

Financial Markets See-saw

Commodities

08 09 10 11

30

60

90

120

150

0.75

1.50

2.25

3.00

3.75

4.50

5.25Stocks

08 09 10 11

600

800

1000

1200

1400

1600

6000

8000

10000

12000

14000

16000

(as of June 8, 2011)

Canadian Dollar(US¢)

08 09 10 11

75

80

85

90

95

100

105

110

Oil(US$/bbl:

lhs)

Copper(US$/lb:

rhs)

TSX(rhs)

S&P 500(lhs)

Record

Concerns: US Growth, Europe, China


Global Risks Cloud Economic Outlook

North Africa / Middle East Unrest

Sovereign Debt Woes

Japanese Earthquake / Tsunami / Nuclear Crisis

Rising Food Prices


Global Cooling?

Jobless Claims– United States –

(000s : 4-wk ma)

08 09 10 11300

400

500

600

700

Industrial Production(y/y % chng)

08 09 10 11-16

-12

-8

-4

0

4

8

0

4

8

12

16

20

24

China(rhs)

US(lhs)

Export Volume– Global –(y/y % chng)

08 09 10 11-20

-10

0

10

20

30


US Faster than Canada in 2012?

Recovery Gears Down After Fast Start

Real GDP

04 05 06 07 08 09 10 11 12

-8

-4

0

4

8

(q/q % chng : ar)

forecast

09 10 11 12CanadaUS

-2.8-2.6

3.22.9

2.82.5

2.63.0

Canada

US


(January 2006 = 100)

Employment: The Five-year Picture

Employment

06 07 08 09 10 1194

96

98

100

102

104

106

108

CanadaUS

Cumulative Chng in Recession % Level

-2.5%-6.3%

-428,000-8.8 mln

Past 12 Months(y/y chng) Canada USConstructionGovernmentTotal

+2.7%+2.8%+1.7%

0.0%-3.7%

+0.7%

US

Canada


Jobless Rates Fall, But Gradually

04 05 06 07 08 09 10 11 124

5

6

7

8

9

10

11 SpainIrelandGreecePortugalFranceItalyBelgiumUKGermanyAustraliaJapan

20.714.714.112.69.48.17.77.66.14.94.7

Unemployment Rate (percent)

Canada

US

forecast

9.1%

7.6%

4.4%

33-year Low5.9%


Canadian Housing Chills, US Still Frozen

Existing Home Prices(2003 = 100)

03 05 07 09 1180

100

120

140

160

180

Housing Starts(2005 = 100 : 2-mnth ma)

03 05 07 09 1120

40

60

80

100

120

Home Sales: US = Existing + New Canada = Existing Existing Home Prices: US = S&P/Case-Shiller 20-cities Home Price Index

Home Sales(mlns : ar)

03 05 07 09 114

5

6

7

8

9

0.2

0.3

0.4

0.5

0.6Canada

(rhs) Canada

Canada

USUS

US(lhs)


Canadian House Prices: Vancouver Manoeuvre

(y/y % chng : as of April 2011)Canada – Major Markets

Sales Softer in April: But Prices Still Firm

Existing Home Prices

VancouverSt John’sTorontoCanada

MontrealOttawaCalgary

WinnipegEdmonton

-6 0 6 12 18 24 30

21.09.9

9.17.7

6.05.4

4.11.7

-3.4

$815,000$243,000$477,000$413,000$306,000$352,000$412,000$241,000$328,000

AverageHome Price

(weighted)


Consumer Recovery: Trading Places

Personal Savings Rate(% of disposable income : 4-qtr ma)

06 07 08 09 10 11 121

2

3

4

5

6

7

Real Consumer Spending

(y/y % chng)

06 07 08 09 10 11 12-3

0

3

6

US

Canada

09 10 11 12CanadaUS

0.4-1.2

3.31.7

2.12.5

2.52.7

forecast

US

Canada


But Debt Burdens Now SimilarHousehold Credit = Consumer Credit and Residential Mortgages Household Debt includes household and unincorporated business debt

Canadian Consumers: Held Up Better

Household Debt(ratio to personal disposable income)

90 95 00 05 100.8

1.0

1.2

1.4

1.6

1.8

Consumer Confidence Index

07 08 09 10 1120

40

60

80

100

120Household Credit

(y/y % chng)

05 06 07 08 09 10 11-5

0

5

10

15Canada

US

Canada

US

Canada

USCrossover


05 06 07 08 09 10 119

12

15

18

21

0.9

1.2

1.5

1.8

2.1 – 3-mnth ma –

05 06 07 08 09 10 115

10

15

20

25

Canada: Apr & May = estimate

Canada(rhs)

Vehicle Sales (mlns : ar)

Changing Gears

China

US

Crossover

US(lhs)


Global GDP: The Great Divide

Real GDP

ChinaIndia

KoreaBrazil

CanadaEurozone

USUK

Japan

-2 0 2 4 6 8 10

9.77.8

4.24.2

2.92.5

2.31.8

-0.7

Real GDP

ChinaIndia

KoreaBrazil

CanadaEurozone

USUK

Japan

-2 0 2 4 6 8 10

2011:Q1 (y/y % chng)09 10 11 12

World -0.5 5.1 3.9 4.5


2010 Shares: Japan 2.4%, China 3.4%

Europe & Emerging Markets

75 80 85 90 95 00 05 10

4

6

8

10

12

14

16

Canadian Exports (% of total)

Canadian Exports: Where Now?

United States

75 80 85 90 95 00 05 10

60

65

70

75

80

85

Europe

Emerging Markets


Commodity Trends: Moving Parts

Metals & Energy

Gold

Oil

Natural Gas

Copper

Materials & Foodstuffs

Lumber

Coffee

Wheat

Corn

(as of June 7, 2011) (as of June 8, 2011)

Commodity Price Range

336.80

3.32

12.97

7.61

(5-yr range)

(US$/1000 sq ft)

(US$/lb)

(US$/bu)

138.10

1.04

3.88

1.96(US$/bu)

Low High

7.31

227.60 [Current]

2.86

8.05

560.75(US$/oz)

31.41(US$/bbl)

1.88(US$/mmbtu)

1.26(US$/lb)

1,549.00

145.29

13.31

4.60

Low High

100.50

4.83

4.07

1,537.75


Western Canada to Lead GrowthReal GDP Growth Rate (percent)

Source: [2011-12] BMO Capital Markets forecasts

Canada201020112012

3.22.82.6

Alta201020112012

3.83.63.4 Sask

201020112012

4.43.93.3

Man201020112012

2.02.62.9 Ont

201020112012

3.42.72.6

Que201020112012

2.72.42.3

NL201020112012

6.03.71.5

PEI201020112012

2.02.01.7

NB201020112012

3.31.62.0

NS201020112012

2.11.92.1

BC201020112012

4.03.03.1


Loonie & Commodities: The Ties that Bind

95 97 99 01 03 05 07 09 11200

400

600

800

1000

60

70

80

90

100

110

120

Canada (as of June 8, 2011)

BoC Commodity Price Index

(lhs)

C$(US¢ : rhs)



US Dollar Down Again

Broad Trade-weighted US$

00 02 04 06 08 10 12

90

100

110

120

130

140February 27,

2002 Peakforecast

July 15, 2008 Trough

March 9,2009

2011Y-T-Dto Present

% Chng (vs US$)

Swiss FrancEuroUK PoundMexican PesoAustralian $Chinese YuanCanadian $Japanese YenTrade-weighted US$

104.368.715.7-23.0105.927.864.268.6-27.1

11.89.05.04.43.82.01.91.6-4.4

Sovereign Risks, QE2

Feb ’02

16-year Low


US Budget Deficit: Record Shortfall

Source: CBO 2011-12 = forecast

AAA Rating at Risk: S&P’s Warning

– US$ Blns –

81 89 93 01 09 -1,600

-1,200

-800

-400

0

400

– % of Nominal GDP –

1900 1925 1950 1975 2000-32

-24

-16

-8

0

8

Budget Balance – United States

Reagan BushClinton

ObamaBush

World War II

World War I

-6.0%-9.9%

-1,413Record

-1,294

-6.9%

-8.9%

-1,081 f

-1,399 f

-9.3% ff


The Fiscal Pump Turns Off in Canada

– C$ Blns –

89 94 99 04 09 14

-60

-40

-20

0

20

– % of Nominal GDP –

62 72 82 92 02 12

-10

-8

-6

-4

-2

0

2

Attention Now Turns to RestraintSource: Federal Budget e = estimate

forecastPrior Trough

Federal Budget Balance – Canada

e


Budget Balance

BC AB SK MB ON QC NB NS PE NL Combined-3

-2

-1

0

10.6

0.2

-0.4

-1.2-0.8

-2.5

-1.2-1.5

-1.0-0.8

-1.5

Provincial Deficits Swell, As Well

-$25.3 bln

Provincial

Surplus

Deficit

(% of GDP)Canada – FY11/12


Deficit vs Debt

-60 -30 0 30 60 90 120-2.5

0.0

2.5

5.0

7.5

10.0

Net DebtSource: OECD

OECD Fiscal Landscape2011 (% of nominal GDP)

Greece

ItalyBelgium

US

Japan

TROUBLE

(Norway is off the charts [158.9% Net Assets, 8.7% Surplus])

New Zealand

Australia

Korea

DeficitSurplus

CanadaGermany

Spain

UK

FrancePortugal

Ireland


Investors Flock to CanadaCanada (C$ blns)

Direct Investment Flows(4-qtr ms)

90 95 00 05 10

-50

-25

0

25

50

75

100

125

Portfolio Investment Flows(12-mnth ms)

90 95 00 05 10

-50

-25

0

25

50

75

100

125

Inflows

InflowsOutflows

Tech

Commodities

Outflows

Record

Potash Deal Rejected Mostly Bonds


Canadian Dollar Outlook: Still Looking Up?

Canadian Dollar

03 04 05 06 07 08 09 10 11 12

60

70

80

90

100

110

(US¢ : as of June 8, 2011)

Parity

forecast

102.10¢

PositivesRelatively Higher Rates

Global Diversification

Sounder Finances

Commodity Exposure (+/-)

Downside Risk: Global Growth Stumbles


Federal Election:2011

2008

Conservatives NDPLiberalsBQOther

1671023441

1433777492

Canadian Political Landscape 2011

At Least 5 Provincial Elections This Year(Ont, Sask, Man, NL, PEI)

& BC HST Referendum This Summer

(seats)

Green Party


Core Inflation Below 2%Consumer Price Index (y/y % chng)

Canada

08 09 10 11 12-3

0

3

6

United States

08 09 10 11 12-3

0

3

6

Core

Total

Core

Totalforecast

3.3%

1.6% 1.3%

3.2%


Consumer Price Index – Canada

Core CPI 1.6%

(y/y % chng : as of April 2011)

Deflationary

Natural GasBooksHome Entert. Equip.Household AppliancesClothingMortgage InterestWine

-4.8-4.3-4.2-3.1-2.4-2.1-0.6

Inflation and Deflation

Inflationary

GasolineCoffeeBreadElectricityAuto InsuranceTuition FeesProperty Taxes

26.413.59.27.04.43.73.5

Overall CPI 3.3%


BoC to Delay Rate Hikes

Overnight Rate

01 02 03 04 05 06 07 08 09 10 11 12

0

1

2

3

4

5

6

7

(% : as of June 8, 2011)

US

Canada

forecast

RecordLows

BoC Still Worried About Strong C$

1.00%

0% - 0.25%


QE2 Ends in June

Bond Yields Barely Budge

Current spread6 bps

10-year Bonds

07 08 09 10 11 12

2

3

4

5

6

(% : as of June 8, 2011)

US

Canada

forecast

Canada 3.01%US 2.95% 3.70%

4.45%

(Year-end ’11)3.50% ’12)

(Year-end4.05%


Global Equities: Mixed Picture

RussiaDJIA

GermanyS&P 500Nasdaq

UKChina

TSXAustralia

JapanIndia

-15 -10 -5 0 5 10

8.04.2

2.11.9

1.0-1.5-1.8-1.9

-4.9-7.6

-10.3

RussiaIndia

NasdaqGermany

TSXS&P 500

DJIAUK

AustraliaJapanChina

-30 -20 -10 0 10 20 30

22.517.416.9

16.114.5

12.811.0

9.0-0.7

-3.0-14.3

Equity Markets (% chng)

20102011 Year-to-Date


TSX 7-Year Outperformance String at Risk


TSX

07 08 09 10 11

6000

8000

10000

12000

14000

16000

S&P 500

07 08 09 10 11

600

800

1000

1200

1400

1600

A Long Way Back

March 9, 2009

June 18, 2008October 9, 2007

March 9, 2009


+89.4%

-56.8%

+14.2%

+74.4%

-49.8%

+22.2%


Opportunities:Emerging Economy DemandForeign Investment InflowsR&D and InnovationCanadian Banks StrongFiscal Position Strong

Canadian Economy: Challenges & Opportunities

Moderate Expansion

Challenges:Strong C$Weak ProductivityHigh Household DebtGlobal Fiscal RestraintRising Food and Energy Prices

Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets

What Next for the Global Economy?

what next for the global economy? · douglas porter, cfa deputy chief economist & managing...

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