canada & ontario in the global economy: challenges in a … · 2010. 11. 19. · canada &...
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Canada & Ontario in the Global Economy: Canada & Ontario in the Global Economy: Challenges in a Changing WorldChallenges in a Changing World
Presentation to the Presentation to the Ontario Economic SummitOntario Economic Summit
14 November 200714 November 2007
Paul JenkinsSenior Deputy GovernorBank of Canada
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v Global economic and financial trends
v Implications for Canada
Ø Canadian economy
Ø Ontario economy
OutlineOutline
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Global EconomyGlobal Economy
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Global EconomyGlobal Economy
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Global EconomyGlobal Economy
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Global EconomyGlobal Economy
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Global EconomyGlobal Economy
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Global EconomyGlobal Economy
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Corporate Bond Spreads(basis points over government yields)
0
50
100
150
200
250
300
350
400
450
500
Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07
bps
U.S. High Yield EMBI+
Canada Inv. Grade U.S. Inv. Grade
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Global EconomyGlobal Economy
10
10 Year Government Yields
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07
%
U.S. Canada Japan
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Global EconomyGlobal Economy
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3 Month Canadian Money Market Rates
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07
%
T-billsCorporate paperBA (CDOR)Overnight Target
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Global EconomyGlobal Economy
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Relative YOY Equity Index Performance (%)
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07
TSX S&P 500 Euro Stoxx50 Nikkei MSCI Emerging Market *
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Global EconomyGlobal Economy
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Global EconomyGlobal Economy
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2002 population(million)
80 986040202Percentage of wealthiest nation – GDP per capita
1000
200
600
Source: Bank of Canada calculation & World Bank
Real GDP per capita, PPP 2002(as per cent of Norway)
Global EconomyGlobal EconomyIntegration of China & India
15
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Share of exports
Product sophistication
Canada
China
Source: World Trade Analyzer, World Bank & Bank of Canada calculation
Product Sophistication Comparison I - 1985
Global EconomyCompetition from China
16
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Share of exports
Product sophistication
Canada
China
Source: World Trade Analyzer, World Bank & Bank of Canada calculation
Product Sophistication Comparison I - 2001
Global EconomyEconomyCompetition from China
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v Issues facing the Canadian economy:
Ø Sharp appreciation and volatility of the Canadian dollar
Ø Magnitude of recent appreciation appears to be stronger than historical experience would have suggested
Ø Weakening of prospects for the U.S. economy
Ø Tightening of credit conditions
Canadian Economic DevelopmentsCanadian Economic Developments
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Ø The Canadian economy is operating above its production capacity
Ø Momentum in domestic demand has been strong, but net exports have been exerting a significant drag on growth
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Canadian Economic DevelopmentsCanadian Economic Developments
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Canadian Economic DevelopmentsCanadian Economic Developments
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Canadian Economic DevelopmentsCanadian Economic Developments
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Canadian Economic DevelopmentsCanadian Economic Developments
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Canadian Economic DevelopmentsCanadian Economic Developments
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Employment Year-over-year percentage change
-10
-5
0
5
10
2002 2003 2004 2005 2006 2007-10
-5
0
5
10
Manufacturing
Total
Primary & Services
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Canadian Economic DevelopmentsCanadian Economic Developments
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Canadian Economic DevelopmentsCanadian Economic Developments
25
Consumer Price Index Year-over-year percentage change
0
1
2
3
4
5
1998 1999 2000 2001 2002 2003 2004 2005 2006 20070
1
2
3
4
5
Core CPI*
Control range
Total CPI
Target
* CPI excluding eight of the most volatile components and the effect of changes in indirect taxeson the remaining components
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Canadian Economic DevelopmentsCanadian Economic Developments
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Goods* and Services** in Core CPI, Excluding the Effect of Changes in Indirect Taxes
Year-over-year percent change
-2
0
2
4
6
2003 2004 2005 2006 2007-2
0
2
4
6
Core Services
Core Goods
Target
* Excluding fruits, vegetables, gasoline, fuel oil, natural gas and tobacco** Excluding mortgage interest costs and intercity transportation
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v With the rapid and significant fall in the value of the U.S. dollar, there is increased risk of disorderly adjustment to global imbalances, including the increased risk of rising protectionist sentiment
v Given the recent, rapid rise of the Canadian dollar, Canada is bearing a disproportionate share of the adjustment
v While domestic demand in Canada remains robust, if recent levels of the Canadian dollar were to persist, the risk is that output and inflation would be significantly lower
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Some Summary Thoughts on Global Some Summary Thoughts on Global Trends and DevelopmentsTrends and Developments
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v All this points to the heightened need for more exchange rate flexibility on the part of other countries, particularly China and Asia more broadly
v It also points to the need for stronger domestic demand growth outside North America
v The G-20 meetings this week in South Africa offer an excellent opportunity for focused discussion of these issues
v How all of us here today assess and address these global economic forces represents an important challenge for the Canadian and Ontario economies
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Some Summary Thoughts on Global Some Summary Thoughts on Global Trends and DevelopmentsTrends and Developments
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Ontario EconomyOntario Economy
v Issues facing the Ontario economy:
Ø Both cyclical and structural forces at play
Ø Support for market-based adjustments
Ø Importance of taking a medium-term perspective
Ø Policies that encourage flexibility and adaptability
Ø Focus on comparative advantage
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Contribution to Real GDP by Sector (Percent)
0
5
10
15
20
25
97 98 99 00 01 02 03 04 05 06 07
65
66
67
68
69
70
71
72
73
Manufacturing Goods - Excluding Manufacturing Services
Right Scale
Ontario EconomyOntario Economy
30
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Share of Employment by Sector(Percent)
0
5
10
15
20
25
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
62
64
66
68
70
72
74
76
78
Manufacturing Goods - Excluding Manufacturing Services
Right Scale
Ontario EconomyOntario Economy
31