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The World Economic Outlook:
Commodity Price Collapse Sideswipes Global Economy
Kip Beckman Principal Economist, World Outlook, The Conference Board of Canada
October 29th , 2015
3
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1980 1985 1990 1995 2000 2005 2010 2011 2012 2013 2014 2015 2016
Commodity Price Index 2010=1.0
Source: CBoC.
4
40.0
50.0
60.0
70.0
80.0
90.0
100.0
110.0
World Oil Prices wti, $ per barrel
Source: Moody’s Analytics.
5
Global oil prices drivers: why the collapse?
• Supply:
— Diverse oil supply capacity added since 2010
— Increased U.S. production a key factor
• Demand:
—slow growth in the EU, Japan and the BRIC
countries
— Chinese energy demand growth gradually slowing
• Geo-politics:
— Iran oil coming back on market
6
850
950
1,050
1,150
1,250
1,350
1,450
1,550
1,650
1,750
1,850
1,950
9,000
9,050
9,100
9,150
9,200
9,250
9,300
9,350
9,400
9,450
9,500
9,550
9,600
9,650
9,700
Oil production (left scale) Rigs in operation (right scale)
Sources: EIA, Baker Hughes.
U.S. Oil Production and Rig Counts (000s of barrels per day; number of rigs)
7
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
2002 03 04 05 06 07 08 09 10 11 12 13 14 15f 16f 17f
Where are oil prices headed? WTI Crude Price, US$ per barrel
Sources: Bureau of Economic Analysis The Conference Board of Canada.
46 %
drop
8
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
2008 2009 2010 2011 2012 2013 2014 2015 2016
Metals Price Index 2010=1.0
Source: CBoC.
9
• Brazil – China’s slow down plunges economy into recession
• Venezuela – country could default on debt and risks of a complete economic collapse are rising
• Iran – lack of revenue possibly pressured leaders to reach a deal with US on nuclear program in order to ease tough sanctions
• Russia – combination of Western sanctions and low oil prices drives economy into recession
• Canada
Losers from Low Oil and Other Commodity Prices
10
• US – cheaper oil means more discretionary income although oil producers hurt
• Saudi Arabia – low oil prices will hurt but not as much as competitors
• India – reduce the $10.5 billion in expenditures on fuel subsidies and divert elsewhere
• China – every $1 drop in world oil prices saves the government $2.1 billion that can be used to stimulate demand
Winners from Low Oil and Other Commodity Prices
11
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
4.0
6.0
8.0
10.0
12.0
03 04 05 06 07 08 09 10 11 12 13 14 15f 16f
Real GDP Growth Inflation
China: Real GDP Growth and Inflation per cent change
Source: Consensus Economics.
12
• Between 1978 and 2011, 160 million people moved from rural parts of China to cities
• Largest internal migration in world history
• Surging demand for iron, steel cement, copper etc.
• Today 55% of China’s 1.4 billion people live in cities versus 18% in 1978
• Less migration today leads to collapse in commodity prices
Large Internal Migration Winding Down
13
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Euro zone Germany France Italy Spain Greece Portugal
2014 2015 2016
Source: Consensus Economics.
Sluggish Growth in Western Europe per cent change, 2014-16, real GDP
14
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
03 04 05 06 07 08 09 10 11 12 13 14 15f 16f
Japan Real GDP Growth per cent change
Sources: Bureau of Economic Analysis The Conference Board of Canada.
15
-10.0
-5.0
0.0
5.0
10.0
15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
03 04 05 06 07 08 09 10 11 12 13 14f 15f
Real GDP Growth Inflation
Russia: Real GDP Growth and Inflation per cent change
Source: Consensus Economics; IMF.
16
-2.0
0.0
2.0
4.0
6.0
8.0
-2.0
0.0
2.0
4.0
6.0
8.0
03 04 05 06 07 08 09 10 11 12 13 14 15f 16f
Real GDP Growth Inflation
Brazil: Real GDP Growth and Inflation per cent change
Source: Consensus Economics.
17
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
03 04 05 06 07 08 09 10 11 12 13 14 15f 16f
U.S. Real GDP Growth per cent change
Sources: Bureau of Economic Analysis The Conference Board of Canada.
18
0
1
2
3
4
5
6
7
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15f 16f 17f
Canada United States
Short-Term Interest Rates Canadian Bank Rate and U.S. Federal Funds Rate.
Sources: The Conference Board of Canada; Statistics Canada.
19
200
220
240
260
280
300
320
340
360
380
Source: Moody’s Analytics
US Gasoline Prices (cents per gallon)
20
• Consumers get a break – $767 savings for average family from low gasoline and oil-heating bills
• Big cars are back in fashion
• Retailers get a lift – sales up in electronic, restaurant, clothing and sports outlets
Impact of Low Oil Prices on US
21
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
US Light Truck Sales millions
Source: Moody’s Analytics.
22
-900
-800
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
400
500
U.S. Labour Market. change in U.S. employment, 000s.
Source: Bureau of Economic Analysis.
23
500
700
900
1,100
1,300
1,500
1,700
1,900
06 07 08 09 10 11 12 13 14 15f 16f
U.S. Housing Starts. 000s
Sources: Bureau of Economic Analysis; The Conference Board of Canada.
24
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
2000 2007 2009 2014
bot. 90% top 1% top .1%
Sources: Piketty and Saiz.
U.S. Income Inequality per cent change in real income from 1993 (capital gains excluded)
25
50,000
51,000
52,000
53,000
54,000
55,000
56,000
57,000
58,000
2000 2007 2009 2012 2015
Source: Sentier Research.
Stagnant U.S. Incomes real median income
26
• Plastics and rubber manufacturers
• Motor vehicle manufacturers
• Apparel manufacturers
• Building contractors
Sectors with Biggest Job Losses since 2007
27
• Services for the elderly and disabled
• Amusement parks and arcades
• Restaurants
• Department stores
Sectors with Biggest Job Gains since 2007
28
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
03 04 05 06 07 08 09 10 11 12 13 14 15f 16f
Canada’s Real GDP Growth per cent change
Sources: Statistics Canada; The Conference Board of Canada.
29
-20.0
-16.0
-12.0
-8.0
-4.0
0.0
4.0
8.0
12.0
03 04 05 06 07 08 09 10 11 12 13 14 15f 16f
Real Business Investment non-residential structures and machinery, per cent change
Sources: Statistics Canada; The Conference Board of Canada.
30
20
30
40
50
60
70
80
90
100
110
120
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
1.05
1.10
Dollar (left) Oil Price (right)
The Loonie and the Oil Price (WTI $US, $US/$C)
Sources: The Conference Board of Canada; U.S. EIA; Statistics Canada.
31
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Export Volumes per cent change
Sources: Statistics Canada; The Conference Board of Canada.
32
70
80
90
100
110
120
130
140
150
Total Consumer & Mortgage Credit (Debt) as Per Cent of Disposable Income quarterly, 1990Q1 2015Q2
Source: Statistics Canada.
33
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0
BC
PEI
ONT
MB
NB
QUE
NS
NL
Sask
AB
Sources: The Conference Board of Canada; Statistics Canada
Canada: 1.2 %
2015 Real GDP by Province. per cent change, basic prices, $2007.
34
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
BC
ONT
NS
MAN
QUE
SASK
ALB
NB
PEI
NL
Sources: The Conference Board of Canada; Statistics Canada
Canada: 2.4 %
2016 Real GDP by Province. per cent change, basic prices, $2007.
35
2016 Tourism Outlook - Vancouver
Greg Hermus Associate Director, The Conference Board of Canada
36
• Recent Tourism Performance (2015)
• Project Tourism Performance (2016 and beyond)
• Methodology/Assumptions/Concerns
• Results
– Overall results as well as highlighting;
• Domestic Growth Prospects
• US Growth Prospects
• Overseas Travel Prospects
Agenda
37
• The weaker exchange rate and low oil prices (gas prices) were expected to generate a significant boost to domestic pleasure travel and international travel to Canada.
• On the other hand, declines in corporate profits and business confidence levels restricted domestic business travel, particularly in regional markets (AB, SK and NL).
• While BC was fortunate to get good weather early on, tourism activity in many parts of the country got off to a slow start thanks to the long cold winter.
Tourism – 2015 Started with Big Expectations
38
Tourism Growth – Vancouver (2015)
% Change in Overnight person-visits (2015/2014)
Sources: Statistics Canada; The Conference Board of Canada.
4.9%
3.7%
5.6%
3.7%
7.7%
5.3%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
Overall
Domestic
Business
Pleasure
US
Overseas
39
0%
1%
2%
3%
4%
5%
6%
Tourism Growth Projections (2015) % Change in Overnight person-visits (2015 vs. 2014)
Sources: Statistics Canada; The Conference Board of Canada.
Canada =2.8%
40
0%
1%
2%
3%
4%
5%
NL PEI NS NB QC ON MB SK AB BC
Canada = 2.8%
Tourism Growth Projections (2015) % Change in Overnight province-visits (2015 vs. 2014)
Sources: Statistics Canada; The Conference Board of Canada.
41
• Tourism forecast originates from economic drivers (GDP, disposable income, employment, exchange rates, prices, etc.)
• Various non-economic factors are also considered (the role of air capacity, new attractions, infrastructure or major events, specific travel related issues/costs and consumer confidence)
• Consider the importance of various geographic/market segments to the performance for each region
Methodology Used to Establish Forecasts
42
• Early look to 2016 suggests continued growth in domestic air capacity (approx. 6%). Strongest growth from Saskatchewan, Alberta, Ontario, Quebec and within B.C.
• Potential more modest growth anticipated (based on early indications) for direct air capacity from the U.S. (3%) Strongest growth for travel from Texas, Washington, Utah, Nevada, Hawaii, Alaska and Arizona.
• Direct air capacity from overseas is also projected to expand sharply (8%), particularly for some overseas markets incl. China, Taiwan, France, S. Korea, Mexico (incl. Aeromexico), New Zealand and U.K. (WestJet)
Air Capacity
43
Direct Air Capacity – Domestic (Non-stop seat capacity to B.C., 2010-2015)
Sources: Statistics Canada; The Conference Board of Canada.
8,500,000
9,000,000
9,500,000
10,000,000
10,500,000
11,000,000
11,500,000
2010 2011 2012 2013 2014 2015
2015 = 5.3%
2016 = 6.0%?
44
Direct Air Capacity – US (Non-stop seat capacity to B.C., 2010-2015)
Sources: Statistics Canada; The Conference Board of Canada.
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2010 2011 2012 2013 2014 2015
Canadian US & Other
2015 = 6.1%
2016 = 3.0% ?
45
Direct Air Capacity – Overseas (Non-stop seat capacity to Canada, 2010-2015)
Sources: Statistics Canada; The Conference Board of Canada.
0
500,000
1,000,000
1,500,000
2,000,000
2010 2011 2012 2013 2014 2015
Canadian Foreign
2015 = 9.0%
2016 = 8.0% ?
46
• While we don’t expect further depreciation in $CDN still expect some lagged effects of the weaker dollar to prop up domestic pleasure travel this year.
• However, real disposable income gains could be a bit more modest in 2016. Wage growth weaker due to lower corporate profits in 2015 and higher inflation.
• Fortunately, gas prices are not expected to increase much in 2016 and air capacity looks to be growing faster than demand.
Domestic Pleasure Travel - Issues
47
• Nationally, business travel took a big hit in 2015 from economic weakness in a few provinces and uncertain business conditions in others.
• On the other hand, many cities experienced solid growth in convention related activity (including Vancouver – up 8%).
• For 2016, business profits expected to improve modestly and employment growth to continue, however, government austerity measures will continue to limit pace of growth.
• Convention activity in Vancouver estimated to be down 5% (compared with 2015).
Domestic Business Travel - Issues
48
Tourism Growth – Vancouver (2016)
% Change in Overnight person-visits (2016/2015)
Sources: Statistics Canada; The Conference Board of Canada.
3.3%
2.7%
1.8%
3.1%
3.3%
5.2%
0% 1% 2% 3% 4% 5% 6%
Overall
Domestic
Business
Pleasure
US
Overseas
2015 = 4.9%
49
Tourism Growth – Vancouver (2015-2018)
Overnight visits
Sources: Tourism Vancouver's Visitor Volume Model, MNP; Statistics Canada (2014 TSRC), Statistics Canada (2013 ITS), The Conference
Board of Canada
.
Vancouver 2015e 2016f 2017f 2018f
Total (`000s overnight visits) 9,416 9,723 10,020 10,320
4.9 3.3 3.1 3.0
Domestic 5,687 5,841 5,991 6,156
3.7 2.7 2.6 2.8
United States 2,187 2,259 2,324 2,375
7.7 3.3 2.9 2.2
Overseas 1,542 1,623 1,705 1,789
5.3 5.2 5.0 4.9
Total Expenditures ($ millions overnight) 3,104 3,298 3,490 3,688
5.9 6.3 5.8 5.7
Travel Price Index 0.43 2.46 2.21 2.18
e = estimate; f = forecast
50
0%
1%
2%
3%
4%
Canada = 2.4%
Tourism Growth Projections (2016) % Change in Overnight person-visits (2016 vs. 2015)
Sources: Statistics Canada; The Conference Board of Canada.
51
0%
1%
2%
3%
4%
NL PEI NS NB QC ON MB SK AB BC
Canada = 2.4%
Tourism Growth Projections (2016) % Change in Overnight province-visits (2016 vs. 2015)
Sources: Statistics Canada; The Conference Board of Canada.
52
• Longer-term trend has not been in Canada’s favour , however US economy has been performing much better, consumer confidence has improved and more Americans than ever have passports.
• The favourable exchange rate and lower gas prices look to persist over the near term
• Many regions have also stepped up marketing efforts to attract U.S. visitors.
• However, employment growth is projected to be a bit more modest in 2016 and consumer expectations going forward are a bit more subdued.
U.S. Travel Market - Issues
53
• In 2015, the exchange rate made travel to Canada much more price competitive. In general, when the value of the $CDN declines 10% increase we would expect a 4.5% increase in car, 2.5% increase in air and 2.0% increase in other.
• This year we witnessed a near 15% decline in exchange rate, hence should see a boost to car travel by 6.8%, air by 3.8% and other by 3%.
• Going forward, we see a slight boost from lagged effects of the weaker dollar but not significant further declines in the value of the $CDN.
U.S. Travel Market – Exchange Rate Effects
54
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
2,200,000
2,400,000
2,600,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
Overnight US travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
55
Overnight US travel to Vancouver (% Change in visits over previous year)
Sources: Statistics Canada; The Conference Board of Canada.
2015e 2016f 2017f 2018f
US by Car 9.1% 3.5% 3.2% 2.3%
US by Plane 8.1% 4.9% 4.0% 3.6%
US by Other 4.0% 1.0% 0.5% 0.2%
Total to Vancouver 7.7% 3.3% 2.9% 2.2%
56
• Overall volumes have now recovered from 2009
• However, many traditional source markets continue to face economic challenges
• Many emerging markets are now facing stronger economic headwinds
• Electronic Travel Authorization – Visa-Exempt visitors to pay $7 starting March 15, 2016 (Valid up to 5 years)
• Fortunately, geopolitical issues have eased (for the moment) – Russia, ISIS
Overseas Travel Market - Issues
57
0
50,000
100,000
150,000
200,000
250,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
UK travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
58
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
Chinese travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
59
0
5,000
10,000
15,000
20,000
25,000
30,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
France travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
60
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
Germany travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
61
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
Japanese travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
62
0
20,000
40,000
60,000
80,000
100,000
120,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
Mexico travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
63
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
Australia travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
64
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
India travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
65
0
5,000
10,000
15,000
20,000
25,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
Brazil travel to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
66
Select European Markets to Vancouver (% Change in visits over previous year)
Sources: Statistics Canada; The Conference Board of Canada.
2015f 2016f 2017f 2018f
France 11.5% 4.0% 4.5% 0.5%
Germany 2.0% 1.5% 2.1% 1.5%
Italy 3.0% 1.5% 2.1% 1.3%
Switzerland 7.0% 3.0% 2.5% 2.2%
Spain 10.0% 3.0% 1.5% 1.8%
UK 2.5% 4.5% 3.6% 2.1%
67
Select Other Overseas Markets to Vancouver (% Change in visits over previous year)
Sources: Statistics Canada; The Conference Board of Canada.
2015f 2016f 2017f 2018f
Japan 9.0% 4.9% 3.6% 3.3%
China 6.0% 10.5% 11.3% 12.3%
South Korea 8.1% 4.1% 2.5% 3.0%
Taiwan 2.0% 4.0% 3.7% 3.8%
Mexico 7.5% 9.0% 5.7% 6.8%
Australia 2.5% 3.5% 4.2% 4.0%
India 9.5% 12.0% 8.5% 6.5%
Brazil 13.5% 6.0% 10.5% 8.5%
68
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
2008 2009 2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f
Overnight Overseas visits to Vancouver (visits)
Sources: Statistics Canada; The Conference Board of Canada.
69
• 2016
–Tourism activity across all segments to increase.
–Domestic pleasure travel to continue to get a slight boost from the low value of the $CDN, low gas prices and increased air capacity.
–Domestic business travel to get a boost from slightly stronger economic growth and corporate profitability in most regions but convention activity weaker.
–US visits to continue to advance but at a more modest pace.
–Overseas looks poised for another solid year of growth.
Summary
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