the world economic outlook · 3 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1980 1985 1990 1995 2000 2005 2010 2011...

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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


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


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


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


Brazil: Real GDP Growth and Inflation per cent change


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


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


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


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.

http://en.wikipedia.org/wiki/Image:Canada_contour-flag.png

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.

http://en.wikipedia.org/wiki/Image:Canada_contour-flag.png

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)


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)


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)


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)


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)


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)


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)


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)


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)


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)


55

Overnight US travel to Vancouver (% Change in visits over previous year)


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)


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)


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)


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)


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)


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)


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)


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)


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)


66

Select European Markets to Vancouver (% Change in visits over previous year)


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)


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)


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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the world economic outlook · 3 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1980 1985 1990 1995 2000 2005 2010 2011...

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