Global Economic Outlook
The Growth Quandary
September 26, 2013 Financial Executives International
Rideau Club, Ottawa
Peter Hall
Vice-President and Chief Economist
Cycle
length
“Unprecedenteds”
2
Depth of
trough
Role of
policy
Rise of
EMs
Communi-
cation
Sophisti-
cation
Economic
Zones
Globalis-
ation
A new world
??
The return of
confidence
Leading
indicators
Chatter
Reasons the Recovery is Real
3
The end of
austerity
Monetary
policy
unwind
Buffett
says so
Pent-up
demand
US Housing: Back to balance! (Surplus units, thousands)
4 Source: EDC Economics
Breakthrough! (US Consumer Confidence, 1985=100)
5
0
20
40
60
80
100
120
140
160
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Source: Conference Board
Fiscal drag is disappearing…mostly (Government structural balances, % of GDP)
6 Source: BEA, Haver Analytics
-5
-4
-3
-2
-1
0
1
2
3
2007 2008 2009 2010 2011 2012 2013e 2014f
Germany
Japan
US
Advanced
QE: Quadrupling the Monetary base ($US, billions, 2003-2013)
0
500
1000
1500
2000
2500
3000
3500
Jan-2
003
Apr-
2003
Jul-2
003
Oct-
2003
Jan-2
004
Apr-
2004
Jul-2
004
Oct-
2004
Jan-2
005
Apr-
2005
Jul-2
005
Oct-
2005
Jan-2
006
Apr-
2006
Jul-2
006
Oct-
2006
Jan-2
007
Apr-
2007
Jul-2
007
Oct-
2007
Jan-2
008
Apr-
2008
Jul-2
008
Oct-
2008
Jan-2
009
Apr-
2009
Jul-2
009
Oct-
2009
Jan-2
010
Apr-
2010
Jul-2
010
Oct-
2010
Jan-2
011
Apr-
2011
Jul-2
011
Oct-
2011
Jan-2
012
Ap
r-2
01
2
Jul-2
012
Oct-
20
12
Jan-2
013
Ap
r-2
01
3
Jul-2
013
Monetary BaseExcess Bank Reserves
QE3: Where’s the Money??
0
5000
10000
15000
20000
25000
0
500
1000
1500
2000
2500
Jan-2
003
Apr-
2003
Jul-2
003
Oct-
2003
Jan-2
004
Apr-
2004
Jul-2
004
Oct-
2004
Jan-2
005
Apr-
2005
Jul-2
005
Oct-
2005
Jan-2
006
Apr-
2006
Jul-2
006
Oct-
2006
Jan-2
007
Apr-
2007
Jul-2
007
Oct-
2007
Jan-2
008
Apr-
2008
Jul-2
008
Oct-
2008
Jan-2
009
Apr-
2009
Jul-2
009
Oct-
2009
Jan-2
010
Apr-
2010
Jul-2
010
Oct-
2010
Jan-2
011
Apr-
2011
Jul-2
011
Oct-
2011
Jan-2
012
Apr-
2012
Jul-2
012
Oct-
2012
Jan-2
013
Apr-
2013
Jul-2
013
Excess Bank Reserves (LS)
Bank Credit (RS)
Financial
market
weakness/
regulation
Fiscal
cliffs
Confidence
Short-term risks
9
Political
unrest
Price
volatility
Policy
unwind
Emerging
market
volatility
Excess liquidity: distortions?
Cash already
in the system
Source: EDC Economics
Cash
hoarding
Cash
injection
Stockmarkets (% Change between QE1 Announcement (Nov 25/08) and End 2012)
256.0%
237.9%
117.9%
63.7%
30.2%
139.5%
220.9%
277.4%
96.7%
0%
50%
100%
150%
200%
250%
300%
Turkey Sri Lanka India Poland Vietnam Mexico Argentina Indonesia Brazil
Bond Spreads % Change between QE1 Announcement (Nov 25/08) and End 2012
-90.0%
-80.0%
-70.0%
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%Turkey Sri Lanka India Poland Vietnam Mexico
DominicanRep Argentina Indonesia Brazil
…and if growth really is here?
Source: EDC Economics
Real Economy financial transmission
…or leapfrog
QE unwind: Stock markets % Change between QE Unwind Talk (May 1/13) and Aug 30/13
-22.8%
-2.2%
-5.1%
3.1%
-0.1%
-6.4%
-0.6%
-17.1%
-10.1%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
Turkey Sri Lanka India Poland Vietnam Mexico Argentina Indonesia Brazil
QE unwind: currency trouble… (% decline May-August, 2013)
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
Ind
ia
Bra
zil
So
uth
Afr
ica
Chile
Tu
rke
y
Ma
laysia
Peru
Me
xic
o
Ca
na
da
QE unwind: bond spreads % Change between QE Unwind Talk (May 1/13) and Aug 30/13
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Turkey Sri Lanka India Poland Vietnam Mexico DominicanRep
Argentina Indonesia Brazil
Market Share (2012) 2011 2012 2013 (f) 2014 (f)
US 18.9 1.8 2.3 1.7 3.0
Canada 1.7 2.6 2.0 1.5 2.1
Mexico 2.1 3.9 3.8 1.5 3.8
Euro Area 13.7 1.4 -0.4 -0.3 1.0
Japan 5.6 -0.6 2.0 1.7 1.6
Emerging Asia 25.9 8.0 6.6 7.2 7.5
China 15.0 9.3 7.8 7.5 7.8
India 5.7 7.9 4.5 5.0 5.8
Brazil 2.9 2.7 1.0 2.8 3.5
Russia 3.0 4.3 3.6 2.0 2.9
Industrialized 50.2 1.6 1.3 1.2 2.3
Emerging 49.8 6.3 5.2 5.0 5.5
Total World 100.0 3.9 3.2 3.2 3.9
Drivers of the Canadian Dollar
Oil & gas prices
Non-energy commodity prices
Interest rate spreads
US dollar movements*
The ‘halo’ effect
Canadian
dollar
Source: EDC Economics
Interest rate outlook
19
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Canada
US
Commodity Price Outlook
20
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$0
$20
$40
$60
$80
$100
$1202000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
20
17
2018
WTI - 2012
WTI - 2013
Cu - 2012
Cu - 2013
Canadian dollar outlook (USD per CAD, 2013 vs 2012)
21
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
Canada: trade about to take off? (Merchandise trade, total and wood products, $M)
22
0
1000
2000
3000
4000
5000
6000
0
20000
40000
60000
80000
100000
120000
140000
88 90 92 94 96 98 00 02 04 06 08 10 12
Total
Forestry
Sources: Statistics Canada, EDC Economics
Resource-sector investment
NR Can assessment
600 resource-sector projects…
…estimated cost: $650 billion
Large draw on labour force
All regions participate
True North: next frontier
Canada: Strengths
Resource base
Fiscal policy
Financial institutions
Location
Cosmopolitan market
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