what next for the global economy? · douglas porter, cfa deputy chief economist & managing...
TRANSCRIPT
Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets
What Next for the Global Economy?
© BMO Capital Markets www.bmocm.com/economics
Financial Markets See-saw
Commodities
08 09 10 11
30
60
90
120
150
0.75
1.50
2.25
3.00
3.75
4.50
5.25Stocks
08 09 10 11
600
800
1000
1200
1400
1600
6000
8000
10000
12000
14000
16000
(as of June 8, 2011)
Canadian Dollar(US¢)
08 09 10 11
75
80
85
90
95
100
105
110
Oil(US$/bbl:
lhs)
Copper(US$/lb:
rhs)
TSX(rhs)
S&P 500(lhs)
Record
Concerns: US Growth, Europe, China
© BMO Capital Markets www.bmocm.com/economics
Global Risks Cloud Economic Outlook
North Africa / Middle East Unrest
Sovereign Debt Woes
Japanese Earthquake / Tsunami / Nuclear Crisis
Rising Food Prices
© BMO Capital Markets www.bmocm.com/economics
Global Cooling?
Jobless Claims– United States –
(000s : 4-wk ma)
08 09 10 11300
400
500
600
700
Industrial Production(y/y % chng)
08 09 10 11-16
-12
-8
-4
0
4
8
0
4
8
12
16
20
24
China(rhs)
US(lhs)
Export Volume– Global –(y/y % chng)
08 09 10 11-20
-10
0
10
20
30
© BMO Capital Markets www.bmocm.com/economics
US Faster than Canada in 2012?
Recovery Gears Down After Fast Start
Real GDP
04 05 06 07 08 09 10 11 12
-8
-4
0
4
8
(q/q % chng : ar)
forecast
09 10 11 12CanadaUS
-2.8-2.6
3.22.9
2.82.5
2.63.0
Canada
US
© BMO Capital Markets www.bmocm.com/economics
(January 2006 = 100)
Employment: The Five-year Picture
Employment
06 07 08 09 10 1194
96
98
100
102
104
106
108
CanadaUS
Cumulative Chng in Recession % Level
-2.5%-6.3%
-428,000-8.8 mln
Past 12 Months(y/y chng) Canada USConstructionGovernmentTotal
+2.7%+2.8%+1.7%
0.0%-3.7%
+0.7%
US
Canada
© BMO Capital Markets www.bmocm.com/economics
Jobless Rates Fall, But Gradually
04 05 06 07 08 09 10 11 124
5
6
7
8
9
10
11 SpainIrelandGreecePortugalFranceItalyBelgiumUKGermanyAustraliaJapan
20.714.714.112.69.48.17.77.66.14.94.7
Unemployment Rate (percent)
Canada
US
forecast
9.1%
7.6%
4.4%
33-year Low5.9%
© BMO Capital Markets www.bmocm.com/economics
Canadian Housing Chills, US Still Frozen
Existing Home Prices(2003 = 100)
03 05 07 09 1180
100
120
140
160
180
Housing Starts(2005 = 100 : 2-mnth ma)
03 05 07 09 1120
40
60
80
100
120
Home Sales: US = Existing + New Canada = Existing Existing Home Prices: US = S&P/Case-Shiller 20-cities Home Price Index
Home Sales(mlns : ar)
03 05 07 09 114
5
6
7
8
9
0.2
0.3
0.4
0.5
0.6Canada
(rhs) Canada
Canada
USUS
US(lhs)
© BMO Capital Markets www.bmocm.com/economics
Canadian House Prices: Vancouver Manoeuvre
(y/y % chng : as of April 2011)Canada – Major Markets
Sales Softer in April: But Prices Still Firm
Existing Home Prices
VancouverSt John’sTorontoCanada
MontrealOttawaCalgary
WinnipegEdmonton
-6 0 6 12 18 24 30
21.09.9
9.17.7
6.05.4
4.11.7
-3.4
$815,000$243,000$477,000$413,000$306,000$352,000$412,000$241,000$328,000
AverageHome Price
(weighted)
© BMO Capital Markets www.bmocm.com/economics
Consumer Recovery: Trading Places
Personal Savings Rate(% of disposable income : 4-qtr ma)
06 07 08 09 10 11 121
2
3
4
5
6
7
Real Consumer Spending
(y/y % chng)
06 07 08 09 10 11 12-3
0
3
6
US
Canada
09 10 11 12CanadaUS
0.4-1.2
3.31.7
2.12.5
2.52.7
forecast
US
Canada
© BMO Capital Markets www.bmocm.com/economics
But Debt Burdens Now SimilarHousehold Credit = Consumer Credit and Residential Mortgages Household Debt includes household and unincorporated business debt
Canadian Consumers: Held Up Better
Household Debt(ratio to personal disposable income)
90 95 00 05 100.8
1.0
1.2
1.4
1.6
1.8
Consumer Confidence Index
07 08 09 10 1120
40
60
80
100
120Household Credit
(y/y % chng)
05 06 07 08 09 10 11-5
0
5
10
15Canada
US
Canada
US
Canada
USCrossover
© BMO Capital Markets www.bmocm.com/economics
05 06 07 08 09 10 119
12
15
18
21
0.9
1.2
1.5
1.8
2.1 – 3-mnth ma –
05 06 07 08 09 10 115
10
15
20
25
Canada: Apr & May = estimate
Canada(rhs)
Vehicle Sales (mlns : ar)
Changing Gears
China
US
Crossover
US(lhs)
© BMO Capital Markets www.bmocm.com/economics
Global GDP: The Great Divide
Real GDP
ChinaIndia
KoreaBrazil
CanadaEurozone
USUK
Japan
-2 0 2 4 6 8 10
9.77.8
4.24.2
2.92.5
2.31.8
-0.7
Real GDP
ChinaIndia
KoreaBrazil
CanadaEurozone
USUK
Japan
-2 0 2 4 6 8 10
2011:Q1 (y/y % chng)09 10 11 12
World -0.5 5.1 3.9 4.5
© BMO Capital Markets www.bmocm.com/economics
2010 Shares: Japan 2.4%, China 3.4%
Europe & Emerging Markets
75 80 85 90 95 00 05 10
4
6
8
10
12
14
16
Canadian Exports (% of total)
Canadian Exports: Where Now?
United States
75 80 85 90 95 00 05 10
60
65
70
75
80
85
Europe
Emerging Markets
© BMO Capital Markets www.bmocm.com/economics
Commodity Trends: Moving Parts
Metals & Energy
Gold
Oil
Natural Gas
Copper
Materials & Foodstuffs
Lumber
Coffee
Wheat
Corn
(as of June 7, 2011) (as of June 8, 2011)
Commodity Price Range
336.80
3.32
12.97
7.61
(5-yr range)
(US$/1000 sq ft)
(US$/lb)
(US$/bu)
138.10
1.04
3.88
1.96(US$/bu)
Low High
7.31
227.60 [Current]
2.86
8.05
560.75(US$/oz)
31.41(US$/bbl)
1.88(US$/mmbtu)
1.26(US$/lb)
1,549.00
145.29
13.31
4.60
Low High
100.50
4.83
4.07
1,537.75
© BMO Capital Markets www.bmocm.com/economics
Western Canada to Lead GrowthReal GDP Growth Rate (percent)
Source: [2011-12] BMO Capital Markets forecasts
Canada201020112012
3.22.82.6
Alta201020112012
3.83.63.4 Sask
201020112012
4.43.93.3
Man201020112012
2.02.62.9 Ont
201020112012
3.42.72.6
Que201020112012
2.72.42.3
NL201020112012
6.03.71.5
PEI201020112012
2.02.01.7
NB201020112012
3.31.62.0
NS201020112012
2.11.92.1
BC201020112012
4.03.03.1
© BMO Capital Markets www.bmocm.com/economics
Loonie & Commodities: The Ties that Bind
95 97 99 01 03 05 07 09 11200
400
600
800
1000
60
70
80
90
100
110
120
Canada (as of June 8, 2011)
BoC Commodity Price Index
(lhs)
C$(US¢ : rhs)
© BMO Capital Markets www.bmocm.com/economics
(as of June 8, 2011)
US Dollar Down Again
Broad Trade-weighted US$
00 02 04 06 08 10 12
90
100
110
120
130
140February 27,
2002 Peakforecast
July 15, 2008 Trough
March 9,2009
2011Y-T-Dto Present
% Chng (vs US$)
Swiss FrancEuroUK PoundMexican PesoAustralian $Chinese YuanCanadian $Japanese YenTrade-weighted US$
104.368.715.7-23.0105.927.864.268.6-27.1
11.89.05.04.43.82.01.91.6-4.4
Sovereign Risks, QE2
Feb ’02
16-year Low
© BMO Capital Markets www.bmocm.com/economics
US Budget Deficit: Record Shortfall
Source: CBO 2011-12 = forecast
AAA Rating at Risk: S&P’s Warning
– US$ Blns –
81 89 93 01 09 -1,600
-1,200
-800
-400
0
400
– % of Nominal GDP –
1900 1925 1950 1975 2000-32
-24
-16
-8
0
8
Budget Balance – United States
Reagan BushClinton
ObamaBush
World War II
World War I
-6.0%-9.9%
-1,413Record
-1,294
-6.9%
-8.9%
-1,081 f
-1,399 f
-9.3% ff
© BMO Capital Markets www.bmocm.com/economics
The Fiscal Pump Turns Off in Canada
– C$ Blns –
89 94 99 04 09 14
-60
-40
-20
0
20
– % of Nominal GDP –
62 72 82 92 02 12
-10
-8
-6
-4
-2
0
2
Attention Now Turns to RestraintSource: Federal Budget e = estimate
forecastPrior Trough
Federal Budget Balance – Canada
e
© BMO Capital Markets www.bmocm.com/economics
Budget Balance
BC AB SK MB ON QC NB NS PE NL Combined-3
-2
-1
0
10.6
0.2
-0.4
-1.2-0.8
-2.5
-1.2-1.5
-1.0-0.8
-1.5
Provincial Deficits Swell, As Well
-$25.3 bln
Provincial
Surplus
Deficit
(% of GDP)Canada – FY11/12
© BMO Capital Markets www.bmocm.com/economics
Deficit vs Debt
-60 -30 0 30 60 90 120-2.5
0.0
2.5
5.0
7.5
10.0
Net DebtSource: OECD
OECD Fiscal Landscape2011 (% of nominal GDP)
Greece
ItalyBelgium
US
Japan
TROUBLE
(Norway is off the charts [158.9% Net Assets, 8.7% Surplus])
New Zealand
Australia
Korea
DeficitSurplus
CanadaGermany
Spain
UK
FrancePortugal
Ireland
© BMO Capital Markets www.bmocm.com/economics
Investors Flock to CanadaCanada (C$ blns)
Direct Investment Flows(4-qtr ms)
90 95 00 05 10
-50
-25
0
25
50
75
100
125
Portfolio Investment Flows(12-mnth ms)
90 95 00 05 10
-50
-25
0
25
50
75
100
125
Inflows
InflowsOutflows
Tech
Commodities
Outflows
Record
Potash Deal Rejected Mostly Bonds
© BMO Capital Markets www.bmocm.com/economics
Canadian Dollar Outlook: Still Looking Up?
Canadian Dollar
03 04 05 06 07 08 09 10 11 12
60
70
80
90
100
110
(US¢ : as of June 8, 2011)
Parity
forecast
102.10¢
PositivesRelatively Higher Rates
Global Diversification
Sounder Finances
Commodity Exposure (+/-)
Downside Risk: Global Growth Stumbles
© BMO Capital Markets www.bmocm.com/economics
Federal Election:2011
2008
Conservatives NDPLiberalsBQOther
1671023441
1433777492
Canadian Political Landscape 2011
At Least 5 Provincial Elections This Year(Ont, Sask, Man, NL, PEI)
& BC HST Referendum This Summer
(seats)
Green Party
© BMO Capital Markets www.bmocm.com/economics
Core Inflation Below 2%Consumer Price Index (y/y % chng)
Canada
08 09 10 11 12-3
0
3
6
United States
08 09 10 11 12-3
0
3
6
Core
Total
Core
Totalforecast
3.3%
1.6% 1.3%
3.2%
© BMO Capital Markets www.bmocm.com/economics
Consumer Price Index – Canada
Core CPI 1.6%
(y/y % chng : as of April 2011)
Deflationary
Natural GasBooksHome Entert. Equip.Household AppliancesClothingMortgage InterestWine
-4.8-4.3-4.2-3.1-2.4-2.1-0.6
Inflation and Deflation
Inflationary
GasolineCoffeeBreadElectricityAuto InsuranceTuition FeesProperty Taxes
26.413.59.27.04.43.73.5
Overall CPI 3.3%
© BMO Capital Markets www.bmocm.com/economics
BoC to Delay Rate Hikes
Overnight Rate
01 02 03 04 05 06 07 08 09 10 11 12
0
1
2
3
4
5
6
7
(% : as of June 8, 2011)
US
Canada
forecast
RecordLows
BoC Still Worried About Strong C$
1.00%
0% - 0.25%
© BMO Capital Markets www.bmocm.com/economics
QE2 Ends in June
Bond Yields Barely Budge
Current spread6 bps
10-year Bonds
07 08 09 10 11 12
2
3
4
5
6
(% : as of June 8, 2011)
US
Canada
forecast
Canada 3.01%US 2.95% 3.70%
4.45%
(Year-end ’11)3.50% ’12)
(Year-end4.05%
© BMO Capital Markets www.bmocm.com/economics
Global Equities: Mixed Picture
RussiaDJIA
GermanyS&P 500Nasdaq
UKChina
TSXAustralia
JapanIndia
-15 -10 -5 0 5 10
8.04.2
2.11.9
1.0-1.5-1.8-1.9
-4.9-7.6
-10.3
RussiaIndia
NasdaqGermany
TSXS&P 500
DJIAUK
AustraliaJapanChina
-30 -20 -10 0 10 20 30
22.517.416.9
16.114.5
12.811.0
9.0-0.7
-3.0-14.3
Equity Markets (% chng)
20102011 Year-to-Date
(as of June 8, 2011)
TSX 7-Year Outperformance String at Risk
© BMO Capital Markets www.bmocm.com/economics
TSX
07 08 09 10 11
6000
8000
10000
12000
14000
16000
S&P 500
07 08 09 10 11
600
800
1000
1200
1400
1600
A Long Way Back
March 9, 2009
June 18, 2008October 9, 2007
March 9, 2009
(as of June 8, 2011)
+89.4%
-56.8%
+14.2%
+74.4%
-49.8%
+22.2%
© BMO Capital Markets www.bmocm.com/economics
Opportunities:Emerging Economy DemandForeign Investment InflowsR&D and InnovationCanadian Banks StrongFiscal Position Strong
Canadian Economy: Challenges & Opportunities
Moderate Expansion
Challenges:Strong C$Weak ProductivityHigh Household DebtGlobal Fiscal RestraintRising Food and Energy Prices
Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets
What Next for the Global Economy?