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New Year, New Promise

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Title: New Year, New Promise


1
New Year, New Promise
Aron Gampel Vice-President Deputy Chief
Economist Scotiabank Economics
March 5, 2013
2
Canadas Growth Performance At High End Of G7
Trends
Cumulative Output Rise From 2009 Trough
Cumulative Output Rise From Prior Peak
Euro zone (ex. Germany)
Euro zone (ex. Germany)
change
change
Source DataInsight, Scotiabank Economics.
3
Canadas Performance Underpinned By A Diversified
Economy
Canadian Output
Canadas Primary Sector Output
index, 2004100
Construction (6)
index, 2004100
Agriculture Fishing (2)
Services (72)
Total
Oil, Gas Coal (3)
Utilities (3)
Mining (1)
Primary (11)
forecast
forecast
Forestry Lumber (2)
Manufacturing (9)
Bracketed numbers represent share of total
output. Source Statistics Canada, Scotiabank
Economics.
4
Growth And Income Prospects Best In Canadas
Resource Regions
Nominal GDP Per Capita
Nominal GDP Per Capita
index 2004100
index 2004100
Newfoundland and Labrador
Saskatchewan
Alberta
New Brunswick
Manitoba
P.E.I.
Quebec
B.C.
Ontario
Nova Scotia
Source Statistics Canada, Scotiabank Economics.
5
Rebuilding Momentum, But Slowly
Real GDP
annual change
2004-07
Source Bloomberg, U.S. BEA, Statistics Canada,
Eurostat, Scotiabank Economics.
6
U.S. Begins To Play Catch-Up In Big-Ticket
Purchases
Housing Starts
Motor Vehicle Sales
index 2004100
index 2004100
Canada
Canada
U.S.
U.S.
Source Scotiabank Economics, CMHC, U.S. Census
Bureau, Wards Automotive.
7
Canadian Housing Activity Adjusting Lower For
Longer
Existing Home Sales
Existing Home Prices
000s of units, annualized
000s, national average
10-year average
10-year average
Source CREA, Scotiabank Economics.
8
From Fiscal Stimulus To Fiscal Drag
Real Government Spending Canada
Real Government Spending U.S.
annual change
annual change
0
Source Statistics Canada, U.S. BEA, Scotiabank
Economics.
9
Faster Imports, Slower Exports Erode Canadas
Trade Performance
Canadian Merchandise Trade Balances
Canadian Dollar And Oil Prices
CADUSD
WTI Oil US/bbl
C billions, s.a.
Parity
Commodities
100/bbl
WTI Oil(LHS)
Merchandise Trade
Merchandise Trade ex. Commodities
Canadian Dollar(RHS)
forecast
Source Statistics Canada, Bloomberg, Scotiabank
Economics.
10
Canadas Large Current Account Deficit Will Be
Slow To Unwind
¹ Includes industrial ME, motor vehicles
parts, aircraft and other transportation
equipment, ² industrial materials, special
transactions, and other items. Source Statistics
Canada, Scotiabank Economics.
11
Less Financial Strains In Canada, But Risks
Persist
Mortgage Delinquencies
Government Budget Imbalances
forecast
Canada Federal
of total loans past due by three or more months
Aggregate Provincial

U.S.
U.S. Federal ex. Social Security
Canada
budget balances of GDP Fiscal year-ends U.S.
federal Sept. 30, Canada March 31.
Source CBA, MBA, CMHC, U.S. Census Bureau,
Scotiabank Economics.
Source U.S. BEA, Statistics Canada, Budget
documents Nominal GDP and federal forecasts
Scotiabank Economics.
12
Global Industrial Activity Reviving, But Slowly
Global Orders And Production
Record Aircraft Backlog
index
6 month annualized change
backlog
Thousands of Units
Global New Orders (LHS)
Years
Global Industrial Production (RHS)
Source Bloomberg, J.P. Morgan, CPB Netherlands
Bureau for Economic Policy Analysis, Scotiabank
Economics.
13
Profits And Large Cash Holdings to Underpin
Investment Spending
Growth In Corporate Profits
and Business Fixed Investment
index, quarterly, zerorecession trough
y/y change
Canada
United States
Source U.S. BEA, Statistics Canada, Scotiabank
Economics.
14
Non-Residential Construction Much Stronger In
Canada
Non-Residential Construction
Office Vacancy Rates

index 2004Q1100
U.S.
Calgary
Canada
Canada
Toronto
Vancouver
U.S.
Source Statistics Canada, U.S. BEA, Cushman
Wakefield, CBRE, Scotiabank Economics.
15
Yield Curve Flatter Now, Steeper Later
,
10-year Bond Yields
Central Bank Rates
yield

U.S.
U.S.
Canada
Canada
Germany

Euro zone
Source Bank of Canada, U.S. Federal Reserve,
European Central Bank, Scotiabank Economics.
Source Bloomberg, Scotiabank Economics.
16
Less Inflation Risk Now, More Later
Consumer Price Inflation
Central Bank Rates
Average annual change

U.S.
U.S.
Euro zone
Canada
Canada
Euro zone
Source Bank of Canada, U.S. Federal Reserve,
European Central Bank, Scotiabank Economics.
Source Statistics Canada, U.S. BLS, Bloomberg,
Scotiabank Economics.
17
Canada Solid Fundamentals, Better Long-Term
Growth Prospects
Employment
Unemployment Rate
index, 2004 Q1100

Canada
Germany
Euro zone (ex. Germany)
U.K.
U.S.
(ex. Germany)
index 2005Q3100, Q3/Q3, NSA. Source
Statistics Canada, U.S. BLS, Eurostats,
Bloomberg, Scotiabank Economics.
18
Canada Solid Fundamentals, Better Long-Term
Growth Prospects
Population Growth
Net Immigration
000s
population growth rate, 2000-2011
Ontario
Western Canada
Quebec
Atlantic
Net Interprovincial Migration
Western Canada
000s
Atlantic
0
Quebec
Ontario
(ex. Germany)
Source Statistics Canada, IMF, Scotiabank
Economics.
19
Canada Solid Fundamentals, Better Long-Term
Growth Prospects
Bank Share Price Performance
  • Canadas banking system ranked the worlds
    soundest for the 5th consecutive year -- World
    Economic Forums Global Competitiveness Report,
    2008-11.
  • Canadian financial institutions make up 7 of the
    worlds 50 safest banks -- Global Finances
    Worlds 50 Safest Banks, 2012.
  • Canada is one of 11 countries (in addition to
    Australia, Denmark, Norway, Singapore, Sweden and
    Switzerland) whose sovereign debt is AAA rated
    with a stable outlook, and one of 13 AAA
    countries which includes The Netherlands with
    either stable or negative outlooks.
  • Scotiabank named 2012 Bank of the Year by FTs
    The Banker.

change
Source Bloomberg, Scotiabank Economics.
20
Canada Solid Fundamentals, Better Long-Term
Growth Prospects
Marginal Effective Tax Rates on Capital
Corporate Income Tax Rates
2012,
2012,
Japan
National Average assumes 10 Prov. CIT rate and
cross-Canada HST
U.S.
France
U.S.
Germany
Italy
Canada
U.K.
Small Developed Countries
OECD
Canada
Source Finance Canada, Finance Ontario,
Scotiabank Economics.
Central plus sub-central rates. Source OECD,
Scotiabank Economics.
21
Canada Solid Fundamentals, Better Long-Term
Growth Prospects
Commodities Dominate Exports
International Investment In Canada
share of total export receipts, 2012.
C billions
Portfolio Inflows
All Other Goods 35
Agri-Food 7
Forest Products 5
Vehicles Parts 14
Mining 14
Energy 24
Foreign Direct Investment
Commodities 55
Source Statistics Canada, Scotiabank Economics.
22
Canada Must Focus More On Global Markets For
Long-Term Growth
Canadian Exports
World Exports
share of total exports, 2012
of GDP, 2011
Excluding Mexico. Source WTO, IMF, Strategis,
Scotiabank Economics.
23
But Competitive Challenges Persist
2000-2011 change, compound annual growth
Wages
Productivity
Unit Labour Costs (local currency)
Unit Labour Costs (USD)
Wages
Productivity
Unit Labour Costs (local currency)
Currency (against USD)
Unit Labour Costs (USD)
Wages
Productivity
Unit Labour Costs (local currency)
0
Currency (against USD)
Unit Labour Costs (USD)
Source U.S. BLS, Scotiabank Economics.
24
And Trade Prospects Internationally May Be
Slightly Tempered
... Will Likely Narrow
The 3 Percentage Point Gap ...
¹ volumes, real GDP. ² volumes of goods
services. Source IMF, Scotiabank Economics.
25
Emerging Market Economies Consensus Growth
Leaders
Real GDP, average annual change
1980s
1990s
2000s
2010s
1980s
1990s
2000s
2010s
1980s
1990s
2000s
2010s
1980s
1990s
2000s
2010s
1980s
1990s
2000s
2010s
Bracketed figures represent percent share of the
global economy. Source Consensus Forecasts
Global Outlook, October 2012.
26
Emerging Market Economies Have More Financial
Flexibility
Gross Net Debt
Current Account Balance
General Govt, 2012, of GDP
2012, of GDP
Germany
Euro zone
Gross National Savings
Foreign Reserves
2012 Q4, US trillions
2012, of GDP
Emerging and Developing markets. Source IMF,
Bloomberg, Scotiabank Economics.
27
Emerging Market Economies Have Stronger Growth
Dynamics
Per Capita GDP Motor vehicles per 1000 people Number of Airports Health Care Expenditure of GDP Services Share of GDP
India 1,514 20 352 2 65
China 5,417 70 497 5 44
Brazil 12,789 174 4,105 9 67
Canada 50,496 621 1,453 11 70
United States 48,328 793 15,079 16 80
Market exchange rate, USD.Source IMF WEO
October 2012 (estimates), Wards Automotive
Reports, CIA World Factbook.
28
Demographics Will Continue To Drive Emerging
Market Economies
Population
Demographic Trends
billions, 2010
Change in Population 2011 2030 (millions)
15-24 yrs 25-64 yrs 65 yrs
India 12 218 73
China -63 47 136
Brazil -4 21 20
Mexico -1 17 10
U.S. 4 8 37
Canada -1 1 5
Japan -2 -10 14
Russia -3 -11 9
Europe -9 -33 58
Korea
Thailand
Vietnam
Indonesia
Canada
Change in Urbanized Population
U.S.
Restof Asia(ex. Japan)
millions of people
Brazil
Euro area
Russia
Japan
Mexico
Source Population Division of the Department of
Economic and Social Affairs of the United Nations
Secretariat, World Population Prospects The 2010
Revision. IMF estimate.
29
Spending Power
Population
Growth In Personal Disposable Income
billions, 2010
index 2004100
Korea
Thailand
Vietnam
Indonesia
China (Urban)
Canada
U.S.
Restof Asia(ex. Japan)
Canada
Euro zone
Brazil
U.S.
Euro area
Russia
Germany
U.K.
Japan
Mexico
Source Population Division of the Department of
Economic and Social Affairs of the United Nations
Secretariat, World Population Prospects The 2010
Revision. IMF estimate.
Source Bloomberg, IMF, Statistischen
Bundesamtes, Scotiabank Economics.
30
And Oil Consumption
Population
Global Oil Consumption
billions, 2010
Korea
Index, 1999100
China
Thailand
Vietnam
Indonesia
Canada
Emerging Asia
U.S.
Restof Asia(ex. Japan)
Brazil
Euro area
United States
Russia
Japan
Mexico
Source Population Division of the Department of
Economic and Social Affairs of the United Nations
Secretariat, World Population Prospects The 2010
Revision. IMF estimate.
Source Statistics Canada, Bloomberg, Scotiabank
Economics.
31
Reshaping The Global Manufacturing Landscape
Motor Vehicle Production
Auto Sales
millions of units
millions of units
Europe
Europe
North America
North America
China
China
Includes light trucks in North America. Source
Scotiabank Economics, Wards Automotive.
32
Trends In Canadian Exports By Product
Source Industry Canada, Scotiabank Economics.
33
Trends In Canadian Imports By Product
Source Industry Canada, Scotiabank Economics.
34
Economic Market Outlook
Source Scotiabank Economics, Bloomberg.
Forecasts at February 28, 2013
35
Disclaimer
  • TM Trademark of The Bank of Nova Scotia. Used
    under license, where applicable. This report
    has been prepared by Scotiabank Economics as a
    resource for the clients of Scotiabank. Opinions,
    estimates and projections contained herein are
    our own as of the date hereof and are subject to
    change without notice. The information and
    opinions contained herein have been compiled or
    arrived at from sources believed reliable but no
    representation or warranty, express or implied,
    is made as to their accuracy or completeness.
    Neither Scotiabank nor its affiliates accepts any
    liability whatsoever for any loss arising from
    any use of this report or its contents.
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