B C E C O N O M I C B A C K D R O P A N D D E M O G R A P H I C S SEPTEMBER 30, 2016

PRESENTED TO

T H E B C F I N A N C I A L H E A LT H C A R E P R O F E S S I O N A L S S O C I E T Y C O N F E R E N C E

KEN PEACOCK Chief Economist and Vice President

2 0 1 6 : S H A P I N G U P T O B E A N O T H E R D I F F I C U LT Y E A R ( E C O N O M I C A L LY S P E A K I N G ) !

2

• Global economic forecasts are revised down…twice since January 2016 • Five central banks have set ‘negative’ policy rates (ECB, Japan, Denmark, Sweden and Switzerland) • Bond yields hover near all-time lows in many advanced economies…more than US$12 trillion in

sovereign debt is trading at negative nominal yields! • The UK votes to leave the EU; could others follow? • China’s equity market struggles, capital outflows accelerate, debt mounts, and doubts persist whether

the country can avoid a ‘hard landing’ • Mixed economic data spark episodic concern about the (lengthy) American economic expansion • Donald Trump secures the Republican Party nomination for President, promising radical changes to

US trade, foreign and immigration policies if he wins

G L O B A L E C O N O M Y L O S T M O M E N T U M P O S T- 2 0 1 0 3

Source: IMF World Economic Outlook, April 2016 and Historical Database.

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016 2017

World Growth Outlook, real GDP % change

WorldAdvanced EconomiesEmerging Economies

B U T AT L E A S T T H E U S E C O N O M Y I S S T I L L E X PA N D I N G 4

• Real GDP grew 2.4% in 2015, the same as 2014 • But growth eased to just ~1% (annualized) in the first half of 2016, reflecting the strong US dollar, soft

global economy and plunging investment in the oil and gas sector • However…

78 consecutive months of employment gains consumption spending is trending higher housing starts slowly climbing, should reach ~1.2 million this year lower energy prices are a (net) economic plus for the US…in the medium-term fiscal drag is diminishing as state/local government budget positions improve

• Recent forecasts suggest the US economy will grow by 1.5 - 2.1% (after-inflation) in 2016/17 • Interest rate hikes by the Federal Reserve will be slow to come in the next 2 years

U S E M P L O Y M E N T S U R G E S 5

Latest: August 2016 Source: US Bureau of Economic Analysis. seasonally adjusted data

128130132134136138140142144146

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

US Non-Farm Payrolls, millions

US payrolls increased by 2.9 million jobs in 2015, second largest gain since 1999

H O U S I N G S TA R T S C O N T I N U E T O G R I N D H I G H E R 6

Latest: July 2016 Source: US Census Bureau, seasonally adjusted data.

300

500

700

900

1100

1300

1500

07 08 09 10 11 12 13 14 15 16

US Housing Starts, SA, thousands Forecast

C A N A D I A N B O N D Y I E L D S P L U M B T H E D E P T H S 7

Latest: May 2016 Source: Statistics Canada.

02468

1012141618

82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

10 Year Gov’t of Canada Bond Yields, %

A B U M P Y R I D E F O R T H E C A N A D I A N D O L L A R 8

Latest: August 2016 Source: Bank of Canada, noon rate.

0.650.700.750.800.850.900.951.001.051.10

04 05 06 07 08 09 10 11 12 13 14 15 16 17

US$ per Cdn$, monthly averages with quarterly forecasts history

Scotiabank

RBC

CIBC

OECD PPP estimate

40-yr average

FA C T O R S S H A P I N G C A N A D A’ S E C O N O M I C P E R F O R M A N C E I N 2 0 1 6 - 1 7

9

Negative impact • Largely tapped out and increasingly indebted consumers – pointing to weaker growth in consumer

spending going forward • Anticipated slowdown in housing-related investment • Weak/declining business capital spending • Still sluggish commodity markets (natural resources = 50% of Canada’s merchandise exports) Positive impact • Federal government budget deficit will provide some near-term support to aggregate demand • Moderate US economic expansion • (Some) gains in non-energy exports • Continued low interest rates and low Canadian dollar

C A N A D I A N E C O N O M I C R O TAT I O N – U N E M P L O Y M E N T R AT E S B Y B R O A D R E G I O N 1

10

1 Data from the Labour Force Survey. Energy-producing provinces include Alberta, Saskatchewan, and Newfoundland and Labrador.

Source: OECD Economic Surveys.

4

5

6

7

8

9

10

11

2008 2009 2010 2011 2012 2013 2014 2015 2016

Total

Energy-producing provinces

Rest of Canada

%

T R I F U R C AT I O N O F C A N A D I A N H O U S I N G M A R K E T S 11

Latest: May 2016 *Jan to June Source: Statistics Canada, LFS.

y/y growth in average prices* %

* six month moving averages

• Nationally, home resales reached new highs in the first half of 2016

• Strength in national market masks regional divergence

• Greater Vancouver house prices climbed 30% in the year to June 2016…but have fallen recently

• Housing markets in Vancouver and Toronto supported by in-migration, foreign capital inflows, and robust job growth

A N U P D AT E D E C O N O M I C F O R E C A S T F O R C A N A D A 12

Source: BMO Economics, Sept 2016

2015 2016 2017

Real GDP Growth (% change) 1.1 1.2 2.0

Real consumer spending (% change) 1.9 2.0 1.5

Real business investment (% change) -10.6 -7.5 1.6

Unemployment rate (%) 6.9 7.0 6.9

Current account balance (% of GDP) -3.2 -3.3 -2.4

Housing starts (000) 194 195 190

Corporate profits (% change, pre-tax) -24 -24 +11

C A N A D I A N H O U S E H O L D D E B T T O D I S P O S A B L E I N C O M E 13

Source: OECD Economic Surveys.

80

90

100

110

120

130

140

150

160

170

1990 1995 2000 2005 2010 2015

%

H O U S E H O L D I N D E B T E D N E S S R AT I O , C A N A D A V S O T H E R O E C D C O U N T R I E S , Q 4 2 0 1 5 1

14

1 Total household outstanding debt as a percentage of household gross disposable income. Q4 2014 for Denmark and Q1 2015 for Japan.

Source: OECD Economic Surveys.

0

50

100

150

200

250

SVN CHL CZE ITA DEU GRC FRA BEL USA ESP FIN JPN PRT GBR CAN IRL SWE AUS NOR NLD DNK

%

T H E B C J O B M A R K E T H A S D E F I N I T E LY P I C K E D U P 15

Latest: August 2016 Source: Statistics Canada, LFS.

2200

2250

2300

2350

2400

2010 2011 2012 2013 2014 2015 2016

BC employment, SA, thousands

employmenttrend

B U T … A L L J O B G R O W T H H A S B E E N C O N C E N T R AT E D I N T H E L O W E R M A I N L A N D

16

Latest: May 2016 Source: Statistics Canada, LFS.

95

100

105

110

115

10 11 12 13 14 15 16

Employment, indexed Jan 2010=100

lower mainlandrest of BC

0

2

4

6

8

10

12

Van Island

LowerMain.

Thom.Ok

Koot-enay

Cariboo NC / Nechako

North-east

Unemployment rate by region, %

May-15 May-16

U S A C C O U N T S F O R R E C E N T B C E X P O R T G A I N S 17

Latest: April 2016 Source: BC Stats.

700

900

1100

1300

1500

1700

1900

10 11 12 13 14 15 16

BC int. merchandise exports, millions $

USrest of world

-20 0 20 40

South Korea

Japan

China

US

India

total

Export growth (Jan-April) by country, annual % chng

B C C O N S U M E R S A R E S P E N D I N G 18

Latest: July 2016 Source: Statistics Canada.

-10

-5

0

5

10

15

10 11 12 13 14 15 16

Retail sales growth, y/y % change

BCAlberta

B C E C O N O M I C O U T L O O K ( A N N U A L % C H A N G E U N L E S S O T H E R W I S E I N D I C A T E D )

19

f – forecast e – estimate Source: Statistics Canada and BC Stats; Business Council for forecasts.

2014 2015e 2016f 2017f

Real GDP 3.2 3.0 2.7 2.6

Employment 0.6 1.2 3.0 1.5

Unemployment rate (%) 6.1 6.2 6.1 5.9

Housing starts (000 units) 28.4 31.4 39.0 38.0

Retail sales 5.5 6.5 6.5 5.5

BC CPI 1.2 1.1 1.6 1.6

W H Y I S B C O U T- P E R F O R M I N G C A N A D A … D E S P I T E S L U G G I S H C O M M O D I T Y M A R K E T S

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• Population growth (fed by in-migration) = greater demand for domestic goods/services • Housing sector (residential investment + prices + the impact of

‘foreign’ money + wealth effects) • Competitive benefits of, and inward investment fueled by, a cheap Canadian currency • Low interest rate environment (with a high debt burden, this especially helps BC) • Plus…BC has an increasingly diverse industrial and economic base, which strengthens resilience and

limits the impact of downturns in particular sectors: Forest products cluster (logging, wood products mfg, pulp/paper), 35-40% of merchandise exports Tourism (5% of GDP) Advanced technology (7% of GDP)…plus film/t.v. production/digital animation Mining and energy The various components of the ‘gateway’ economy Education sector (now a source of significant ‘export’ earnings for BC) Clean tech/green economy/environmental services cluster Tradable services (scientific, technical, engineering, design, finance, and professional services)

H O U S I N G I S P R O V I D I N G A B I G E C O N O M I C L I F T F O R B C 21

* Includes residential construction, offices of real estate agents and related, and imputed rent. Source: Source: Statistics Canada, CANSIM table 384-0038, data released November 10, 2015.. BC Ministry of Finance, Budget and Fiscal Plan for forecasts

-4

-2

0

2

4

6

08 09 10 11 12 13 14 15

residential housing & related activityall other industries

BC GDP growth – housing complex* and all other industries, %

B C ’ S R E L AT I V E E C O N O M I C P O S I T I O N D E P E N D S O N H O W O T H E R P R O V I N C E S P E R F O R M

22

Source: Statistics Canada, Provincial Economic Accounts

-4

-2

0

2

4

6

BC Alta Sask Man Ont Que NB NS PEI Nfld

Real GDP growth by province, %

2013 2015BC ranks 5th in 2013

BC jumps to “1st spot” in 2015, as the previous growth leaders fall into recession

B C P O P U L AT I O N G R O W T H S L O W I N G 23

Source: BC Stats.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

81 86 91 96 01 06 11 16 21 26 31 36 41

BC annual population growth, %

B C P O P U L AT I O N G R O W S M O S T LY D U E T O I M M I G R AT I O N 24

Source: BC Stats.

-30-20-10

0102030405060

81 86 91 96 01 06 11 16 21 26 31 36

Components of BC population change, thousands

naturalnet interprovincialnet international

N U M B E R O F P E O P L E O V E R 6 0 I S T H E C O H O R T T H AT W I L L G R O W 25

Source: BC Stats.

200400600800

1,0001,2001,4001,6001,8002,000

81 86 91 96 01 06 11 16 21 26 31 36 41

BC population by age cohorts, thousands

15-29 30-44 45-59 60+

G R O W T H I N W O R K I N G A G E P O P U L AT I O N R E A L LY S L O W I N G 26

Source: BC Stats.

-3.0-2.0-1.00.01.02.03.04.05.06.07.0

81 86 91 96 01 06 11 16 21 26 31 36 41

BC annual population growth, %

15-2930-4445-59

H E A D I N G F O R O N E ‘ R E T I R E E ’ F O R E V E RY T W O W O R K I N G A G E P E O P L E 27

Source: BC Stats.

22.9

32.7

49.4

0

10

20

30

40

50

60

1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036 2041

Number of people 65+ per 100 people aged 25-64 in BC

P O P U L AT I O N G R O W T H C O N C E N T R AT E D I N S O U T H W E S T 28

Source: BC Stats.

-6-4-202468

1012

Van Is LM Thom-Ok Kootenay Cariboo Northcoast Nechako Northeast

Population Growth over 5-year periods shown, %

2006-11 2011-16 2016-21

A G I N G P O P U L AT I O N M O R E P R O N O U N C E D I N S M A L L E R C O M M U N I T I E S 29

Source: BC Stats.

0

10

20

30

40

50

60

70

Van Is LM Thom-Ok Kootenay Cariboo Northcoast Nechako Northeast

Number of people 65+ per 100 people aged 25-64 by region

2016 2026 2036

P O P U L AT I O N G R O W T H C O N C E N T R AT E D S O U T H W E S T 30

Source: BC Stats..

150017001900210023002500270029003100

1991 1996 2001 2006 2011 2016 2021 2026

Population, 000s

Van CMArest of BC

86.8

425.5

63.4

4.6 5.6 7.0 4.0 10.0

-70

30

130

230

330

430

Van Island

LowerMain.

Thom.Ok

Koot-enay

Cari-boo

NorthCoast

Nech-ako

North-east

Population increase, 000s

2006-16 2016-26

I N T E R P R O V I N C I A L M I G R AT I O N L I F T S P O P U L AT I O N G R O W T H 31

Latest: Q1 2016 Source: BC Stats, BCBC for seasonal adjustment.

-10,000

-5,000

0

5,000

10,000

15,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

BC Net Migration, quarterly SA, persons

InterprovincialInternational

N E T I N F L O W F R O M A L B E R TA P I C K S U P 32

Latest: Q1 2016 Source: Statistics Canada.

-4000-3000-2000-1000

01000200030004000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Net BC-Alberta migration, SA

3000

4000

5000

6000

7000

8000

9000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

BC-Alberta migration, SA

BC to AltaAlta to BC

R E C A P 33

• Subdued and choppy global economy will continue through 2016…and perhaps beyond

• A generally uninspiring near-term outlook for Canada, with hopes largely riding on US expansion

• Interest rates will remain low and rate hikes in Canada will lag the US

• BC should comfortably outpace Canada in GDP and job growth in 2016-17

• Growth in working age population continues to slow over coming decade

• BC’s population and labour force grows essentially because of in-migration

• Interprovincial migration a source of workers over the next few years

• Population steadily aging with rural parts of the province facing the biggest demographic challenges