canada & ontario in the global economy: challenges in a … · 2010. 11. 19. · canada &...

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

v Global economic and financial trends

v Implications for Canada

Ø Canadian economy

Ø Ontario economy

OutlineOutline

2

3

Global EconomyGlobal Economy

4



5


6


7


8


9

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


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


11

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


12

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 *


13


14

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

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

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

17

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

18

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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20


21


22


23

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


24


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


26

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

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

27

Some Summary Thoughts on Global Some Summary Thoughts on Global Trends and DevelopmentsTrends and Developments

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

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


30

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


31

canada & ontario in the global economy: challenges in a … · 2010. 11. 19. · canada &...

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