Global Economic Outlook

The Growth Quandary

September 26, 2013 Financial Executives International

Rideau Club, Ottawa

Peter Hall

Vice-President and Chief Economist

Cycle

length

“Unprecedenteds”

2

Depth of

trough

Role of

policy

Rise of

EMs

Communi-

cation

Sophisti-

cation

Economic

Zones

Globalis-

ation

A new world

??

The return of

confidence

Leading

indicators

Chatter

Reasons the Recovery is Real

3

The end of

austerity

Monetary

policy

unwind

Buffett

says so

Pent-up

demand

US Housing: Back to balance! (Surplus units, thousands)

4 Source: EDC Economics

Breakthrough! (US Consumer Confidence, 1985=100)

5

0

20

40

60

80

100

120

140

160

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

Source: Conference Board

Fiscal drag is disappearing…mostly (Government structural balances, % of GDP)

6 Source: BEA, Haver Analytics

-5

-4

-3

-2

-1

0

1

2

3

2007 2008 2009 2010 2011 2012 2013e 2014f

Germany

Japan

US

Advanced

QE: Quadrupling the Monetary base ($US, billions, 2003-2013)

0

500

1000

1500

2000

2500

3000

3500

Jan-2

003

Apr-

2003

Jul-2

003

Oct-

2003

Jan-2

004

Apr-

2004

Jul-2

004

Oct-

2004

Jan-2

005

Apr-

2005

Jul-2

005

Oct-

2005

Jan-2

006

Apr-

2006

Jul-2

006

Oct-

2006

Jan-2

007

Apr-

2007

Jul-2

007

Oct-

2007

Jan-2

008

Apr-

2008

Jul-2

008

Oct-

2008

Jan-2

009

Apr-

2009

Jul-2

009

Oct-

2009

Jan-2

010

Apr-

2010

Jul-2

010

Oct-

2010

Jan-2

011

Apr-

2011

Jul-2

011

Oct-

2011

Jan-2

012

Ap

r-2

01

2

Jul-2

012

Oct-

20

12

Jan-2

013

Ap

r-2

01

3

Jul-2

013

Monetary BaseExcess Bank Reserves

QE3: Where’s the Money??

0

5000

10000

15000

20000

25000

0

500

1000

1500

2000

2500

Jan-2

003

Apr-

2003

Jul-2

003

Oct-

2003

Jan-2

004

Apr-

2004

Jul-2

004

Oct-

2004

Jan-2

005

Apr-

2005

Jul-2

005

Oct-

2005

Jan-2

006

Apr-

2006

Jul-2

006

Oct-

2006

Jan-2

007

Apr-

2007

Jul-2

007

Oct-

2007

Jan-2

008

Apr-

2008

Jul-2

008

Oct-

2008

Jan-2

009

Apr-

2009

Jul-2

009

Oct-

2009

Jan-2

010

Apr-

2010

Jul-2

010

Oct-

2010

Jan-2

011

Apr-

2011

Jul-2

011

Oct-

2011

Jan-2

012

Apr-

2012

Jul-2

012

Oct-

2012

Jan-2

013

Apr-

2013

Jul-2

013

Excess Bank Reserves (LS)

Bank Credit (RS)

Financial

market

weakness/

regulation

Fiscal

cliffs

Confidence

Short-term risks

9

Political

unrest

Price

volatility

Policy

unwind

Emerging

market

volatility

Excess liquidity: distortions?

Cash already

in the system

Source: EDC Economics

Cash

hoarding

Cash

injection

Stockmarkets (% Change between QE1 Announcement (Nov 25/08) and End 2012)

256.0%

237.9%

117.9%

63.7%

30.2%

139.5%

220.9%

277.4%

96.7%

0%

50%

100%

150%

200%

250%

300%

Turkey Sri Lanka India Poland Vietnam Mexico Argentina Indonesia Brazil

Bond Spreads % Change between QE1 Announcement (Nov 25/08) and End 2012

-90.0%

-80.0%

-70.0%

-60.0%

-50.0%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%Turkey Sri Lanka India Poland Vietnam Mexico

DominicanRep Argentina Indonesia Brazil

…and if growth really is here?

Source: EDC Economics

Real Economy financial transmission

…or leapfrog

QE unwind: Stock markets % Change between QE Unwind Talk (May 1/13) and Aug 30/13

-22.8%

-2.2%

-5.1%

3.1%

-0.1%

-6.4%

-0.6%

-17.1%

-10.1%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

Turkey Sri Lanka India Poland Vietnam Mexico Argentina Indonesia Brazil

QE unwind: currency trouble… (% decline May-August, 2013)

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

Ind

ia

Bra

zil

So

uth

Afr

ica

Chile

Tu

rke

y

Ma

laysia

Peru

Me

xic

o

Ca

na

da

QE unwind: bond spreads % Change between QE Unwind Talk (May 1/13) and Aug 30/13

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Turkey Sri Lanka India Poland Vietnam Mexico DominicanRep

Argentina Indonesia Brazil

Market Share (2012) 2011 2012 2013 (f) 2014 (f)

US 18.9 1.8 2.3 1.7 3.0

Canada 1.7 2.6 2.0 1.5 2.1

Mexico 2.1 3.9 3.8 1.5 3.8

Euro Area 13.7 1.4 -0.4 -0.3 1.0

Japan 5.6 -0.6 2.0 1.7 1.6

Emerging Asia 25.9 8.0 6.6 7.2 7.5

China 15.0 9.3 7.8 7.5 7.8

India 5.7 7.9 4.5 5.0 5.8

Brazil 2.9 2.7 1.0 2.8 3.5

Russia 3.0 4.3 3.6 2.0 2.9

Industrialized 50.2 1.6 1.3 1.2 2.3

Emerging 49.8 6.3 5.2 5.0 5.5

Total World 100.0 3.9 3.2 3.2 3.9

Drivers of the Canadian Dollar

Oil & gas prices

Non-energy commodity prices

Interest rate spreads

US dollar movements*

The ‘halo’ effect

Canadian

dollar

Source: EDC Economics

Interest rate outlook

19

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Canada

US

Commodity Price Outlook

20

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$0

$20

$40

$60

$80

$100

$1202000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

20

17

2018

WTI - 2012

WTI - 2013

Cu - 2012

Cu - 2013

Canadian dollar outlook (USD per CAD, 2013 vs 2012)

21

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

Canada: trade about to take off? (Merchandise trade, total and wood products, $M)

22

0

1000

2000

3000

4000

5000

6000

0

20000

40000

60000

80000

100000

120000

140000

88 90 92 94 96 98 00 02 04 06 08 10 12

Total

Forestry

Sources: Statistics Canada, EDC Economics

Resource-sector investment

NR Can assessment

600 resource-sector projects…

…estimated cost: $650 billion

Large draw on labour force

All regions participate

True North: next frontier

Canada: Strengths

Resource base

Fiscal policy

Financial institutions

Location

Cosmopolitan market

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