canada’s second quarter: two divergent economies
TRANSCRIPT
July 9, 2015
1
Canada’s second quarter:
Two divergent economies
Summary
Growing downbeat comment on the Canadian economy
and talk of a technical recession prompt us to offer our
assessment of the situation.
The recent poor showing is neither Canada-wide nor
economy-wide. The downturn is in energy and was
concentrated in Alberta in Q2. Though GDP may have
edged down for a second consecutive quarter, it would
be hard to call this a recession.
Happily, the stars seem aligned for a much better showing
in Q3. A combination of federal fiscal stimulus and resilient
labour market is likely to buoy domestic demand. What’s
more, exports will have support from a strong pickup of
the U.S. economy in the second half of the year if the
global backdrop does not worsen.
Though the Bank of Canada could cut its policy rate once
more on July 15 (the market is giving about 50% odds of
this outcome), that would be a matter of beefing up
insurance coverage. The Canadian economy is not
moribund.
What’s been going on here?
Concern about the Canadian economy was revived by a
fourth straight monthly contraction of GDP in April. In
assessing this development, it is important to keep in mind
that outside the energy sector (10% of GDP), the economy
began expanding again in March.
The near-record contraction of energy output in Q2 has
weighed on business investment across Canada.
-.4
-.3
-.2
-.1
.0
.1
.2
.3
.4
.5
.6
Nov Dec Jan Feb Mar Apr
2014 2015
Canada: Perspective on monthly GDPMonthly real GDP – total vs. total excluding energy sector
NBF Economics and Strategy (data via Statistics Canada)
GDP excluding
energy sector
% (m/m change)
Total GDP
-16
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
2007 2008 2009 2010 2011 2012 2013 2014 2015
Canada: Massive contraction in energy sectorMonthly real GDP – energy sector
NBF Economics and Strategy (data via Statistics Canada)
% (q/q/ change, saar)
SPECIAL REPORT
2
While the energy-sector slump dragged down Canadian
GDP in Q2, non-energy GDP appears to have expanded
1% to 1.5%. The gap between the energy sector and the
rest of the economy has never been so wide.
The showing of the rest of the economy is attributable to
Canadian consumers, who remain almost as confident as
their U.S. counterparts.
This confidence reflects growth of disposable income,
which has been fuelled by federal fiscal stimulus and
record full-time employment. Ontario and Quebec
continue to perform particularly well on that front.
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Canada: Business investment declining again in Q2Imports of machinery & equipment
NBF Economics and Strategy (data via Datastream)
Industrial machinery
% q/q ann.
Electronic and electrical
equipment
-10
-8
-6
-4
-2
0
2
4
6
8
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2007 2008 2009 2010 2011 2012 2013 2014 2015
* Assumes 0.2% growth in May and June
NBF Economics and Strategy (data via Statistics Canada)
% (q/q/ change, saar)
Canada: Rebound or no rebound in Q2?Monthly real GDP – total vs. total excluding energy sector
GDP excluding
energy sector*
Total
GDP
20
30
40
50
60
70
80
90
100
110
120
130
140
02 03 04 05 06 07 08 09 10 11 12 13 14 15
Index 2014 = 100
NBF Economy and Strategy, data from U.S. Conference Board and Conference Board of Canada
Canada: No collapse in consumer confidence outside AB
30
40
50
60
70
80
90
100
110
120
130
140
150
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
AB
MB-SK
Index 2014 = 100
Consumer confidence:
Alberta and Manitoba-Saskatchewan
Consumer confidence:
Canada and U.S
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2011 2012 2013 2014 2015
Canada: Unusual dynamicNominal GDP and disposable income
NBF Economics and Strategy (data via Statistics Canada)
Nominal
GDP
% (q/q, saar)
Disposable
income
13.3
13.4
13.5
13.6
13.7
13.8
13.9
14.0
14.1
14.2
14.3
14.4
14.5
14.6
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2007 2008 2009 2010 2011 2012 2013 2014 2015
Canada: Job market remains resilientFull-time employment
NBF Economics and Strategy (data via Statcan)
Millions
SPECIAL REPORT
3
These developments have supported household spending
and housing starts. Discretionary outlays reached an all-
time high in Q2, led by new-vehicle sales. Meanwhile,
housing starts hit an eleven-month high in June.
With the energy sector in a slump, robust exports would
have been welcome in the first half of the year. But two
months into Q2, exports were down 5.2% annualized and
a widening of the volume trade deficit was subtracting
from quarterly GDP growth. However, there is reason to
believe that the weakness in May was due in part to
wildfires in Alberta, which crimped oil production, and
that a rebound is likely. The non-energy economy will
benefit in the second half of the year from improvement
of the U.S. economy and a favourable exchange rate.
Stéfane Marion – Chief Economist
73
32
-3
-17
-30
-10
10
30
50
70
ON QC BC AB
Canada: Perspective on job creationNumber of full-time jobs created in 2015 (through May)
NBF Economics and Strategy (data via Statistics Canada)
Thousands (Jan through May)
21.0
21.5
22.0
22.5
23.0
23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
28.0
2007 2008 2009 2010 2011 2012 2013 2014 2015
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Q1 Q2 Q3 Q4 Q1 Q2
2014 2015
Canada: Not a recession for consumersRetail sales – discretionary spending*
* Retail sales excluding groceries, gasoline and health care products
NBF Economics and Strategy (data via Statistics Canada)
$ billions Q2
Quarterly growth profile
(%,saar)
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
1 2 3 4 1 2 3 4 1 2
2013 2014 2015
110
115
120
125
130
135
140
145
150
155
160
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Canada: Motor vehicles sales rebound in Q2
NBF Economics and Strategy (data via Desrosiers)
Level salesQuarterly change
% (q/q, saar) Thousands (s.a.)
Q2 Q2
150
155
160
165
170
175
180
185
190
195
200
205
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
2014 2015
Canada : Housing starts rebound in Q2Total housing starts
thousands
NBF Economics and Strategy (data via Statistics Canada)
22
23
24
25
26
27
28
29
30
31
32
33
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Canada: Non-energy volume merchandise exports
NBF Economics and Strategy (data via Statistics Canada)
$ billions (constant 2007)
SPECIAL REPORT
ECONOMICS AND STRATEGY
Montreal Office Toronto Office
514-879-2529 416-869-8598
Stéfane Marion Marc Pinsonneault
Chief Economist & Strategist Senior Economist
[email protected] [email protected]
Paul-André Pinsonnault Matthieu Arseneau
Senior Fixed Income Economist Senior Economist
[email protected] [email protected]
Krishen Rangasamy
Senior Economist
General: National Bank Financial Markets is a business undertaken by National Bank Financial Inc. (“NBF”), an indirect wholly owned subsidiary of National Bank
of Canada, and a division of National Bank of Canada. This research has been produced by NBF. National Bank of Canada is a public company listed on
Canadian stock exchanges. The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to
buy or sell the securities mentioned herein. Canadian Residents: In respect of the distribution of this report in Canada, NBF accepts responsibility for its contents. To make further inquiry related to this report or effect any transaction, Canadian residents should contact their NBF Investment advisor.
U.S. Residents: With respect to the distribution of this report in the United States, National Bank of Canada Financial Inc. (NBCFI) is regulated by the Financial Industry Regulatory Authority (FINRA) and a member of the Securities Investor Protection Corporation (SIPC). This report has been prepared in whole or in part by, research analysts employed by non-US affiliates of NBCFI that are not registered as broker/dealers in the US. These non-US research analysts are not registered as associated persons of NBCFI and are not licensed or qualified as research analysts with FINRA or any other US regulatory authority and, accordingly, may not be subject (among other things) to FINRA restrictions regarding communications by a research analyst with the subject company, public appearances by research analysts and trading securities held a research analyst account. All of the views expressed in this research report accurately reflect the research analysts’ personal views regarding any and all of the subject securities or issuers. No part of the analysts’ compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. The analyst responsible for the production of this report certifies that the views expressed herein reflect his or her accurate personal and technical judgment at the moment of publication. Because the views of analysts may differ, members of the National Bank Financial Group may have or may in the future issue reports that are inconsistent with this report, or that reach conclusions different from those in this report. To make further inquiry related to this report, United States residents should contact their NBCFI registered representative.
UK Residents: In respect of the distribution of this report to UK residents, National Bank Financial Inc. has approved the contents (including, where necessary, for the purposes of Section 21(1) of the Financial Services and Markets Act 2000). National Bank Financial Inc. and/or its parent and/or any companies within or affiliates of the National Bank of Canada group and/or any of their directors, officers and employees may have or may have had interests or long or short positions in, and may at any time make purchases and/or sales as principal or agent, or may act or may have acted as market maker in the relevant securities or related financial instruments discussed in this report, or may act or have acted as investment and/or commercial banker with respect thereto. The value of investments can go down as well as up. Past performance will not necessarily be repeated in the future. The investments contained in this report are not available to retail customers. This report does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for the securities described herein nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. This information is only for distribution to Eligible Counterparties and Professional Clients in the United Kingdom within the meaning of the rules of the Financial Conduct Authority. National Bank Financial Inc. is authorised and regulated by the Financial Conduct Authority and has its registered office at 71 Fenchurch Street, London, EC3M 4HD. National Bank Financial Inc. is not authorised by the Prudential Regulation Authority and the Financial Conduct Authority to accept deposits in the United Kingdom.
Copyright: This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of National Bank Financial.
Warren Lovely
MD, Public Sector Research and Strategy [email protected]