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Economic Outlook: fear over fundamentals
ECONOMICS I RESEARCH
May 2016
Craig Wright (SVP & Chief Economist) (416) 974-7457 [email protected]
ECONOMICS I RESEARCH 2
-100
-50
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Year-over-year % change, Market volatility index, (VIX)
Volatility index
Source: Wall Street Journal, RBC Economics Research
ECONOMICS I RESEARCH 3
-1
1
2
3
4
5
6
7
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Canada
U.S.
UK
Eurozone
%, eop
Central bank policy rates
Source: Bank of Canada, Federal Reserve Board, Bank of England, European Central Bank, RBC Economics Research
Forecast
ECONOMICS I RESEARCH 4
9.0
10.010.1
11.3
12.6
14.2
9.79.1
10.7
9.5
7.7 7.77.3
6.9
10.010.210.09.4
8.68.0
7.6 7.57.9 7.8 7.6
7.97.5 7.3 7.4 7.2 7.2 7.1 7.0 6.8 6.8 6.7 6.5 6.2
2
4
6
8
10
12
14
16
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
2016
2017
Forecast
% change, year-over-year
Real GDP: China
Source: CNBS, Haver Analytics, IMF, RBC Economics Research Forecasts
ECONOMICS I RESEARCH 5
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Annual Growth Rates
Forecast
% change, year-over-year
Advanced versus emerging economies GDP growth
Source: International Monetary Fund, RBC Economics Research Forecasts
2016f
1.94.1
3.2
Advanced Economies
Emerging and DevelopingWorld
2017f
2.04.6
3.5
2014
1.84.6
3.4
2015
1.94.0
3.1
ECONOMICS I RESEARCH 6
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Western Canadian Select (WCS) West Texas Intermediate (WTI)
$US/bbl
Oil prices: WTI and WCS
Source: Bloomberg, Wall Street Journal, RBC Economics Research
Forecast
ECONOMICS I RESEARCH 7
-10
-8
-6
-4
-2
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Forecast:
Source: Bureau of Economic Analysis, RBC Economics Research
U.S. real GDPQuarter-over-quarter annualized % change
Annual Growth Rates
2016f
2.0
2015
2.4
2014
2.4Real GDP
2017f
2.4
ECONOMICS I RESEARCH 8
-1000
-800
-600
-400
-200
0
200
400
600
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Bureau of Labor Statistics, RBC Economics Research
Private sector employment growth: U.S.Change from previous month (Thous.)
ECONOMICS I RESEARCH 9
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Federal Reserve, RBC Economics Research
%
Forecast
Interest rates: U.S.
10 Year Bond Yield
Fed Funds Rate
ECONOMICS I RESEARCH 10
80
85
90
95
100
105
110
115
120
125
130
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Index: 1990=100
Real Broad Trade-Weighted Exchange Value of the US$
Source: Federal Reserve Board, RBC Economics Research
ECONOMICS I RESEARCH 11
0
200
400
600
800
1000
1200
0.50
0.60
0.70
0.80
0.90
1.00
1.10
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Canadian Dollar (LHS) Commodity Prices (RHS)
Source: Bank of Canada, Federal Reserve Board, RBC Economics Research
Canadian dollar and commodity pricesUS$/C$ NSA, Jan-1972=100
ECONOMICS I RESEARCH 12
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Consumer spending Government spending Residential investment Non-res. investment Net external trade Inventories
2015 2016f
Source: Statistics Canada, RBC Economics Research
Percentage points
Canadian real GDP growth composition forecast
ECONOMICS I RESEARCH 13
70
80
90
100
110
120
130
140
2007 2008 2009 2010 2011 2012 2013 2014 2015
Non-energy commodities (29% of total exports)
Non-commodities (51% of total exports)
Energy commodities (20% of total exports)
Foreign activity measure
Index: 2007 Q2 = 100
Canadian exports by sector
Source: Statistics Canada, Bank of Canada, RBC Economics Research
ECONOMICS I RESEARCH 14
5
10
15
20
25
30
35
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Canada
U.S.
UK
Source: Statistics Canada, ONS, FRB, RBC Economics Research
Cash & deposits as a % of GDP
Non-financial corporate liquidity
ECONOMICS I RESEARCH 15
4
5
6
7
8
9
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Employment (LHS) Unemployment Rate (RHS)
SA, millions
Labour market: Canada
Source: Statistics Canada, RBC Economics Research
%SA, millions
Labour market: Canada
Source: Statistics Canada, RBC Economics Research
%
ECONOMICS I RESEARCH 16
5
6
7
8
9
10
11
12
70
80
90
100
110
120
130
140
150
160
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Credit market debt as a % of PDI
Household debt-to-income and debt service ratio: Canada (US Comparable)
Source: Statistics Canada, RBC Economics Research
Interest payments as a % of PDI
Debt-to-income (LHS)
Debt service ratio (RHS)
ECONOMICS I RESEARCH 17
-33.4
-26.2
-18.9
-5.2
1.9
-5.4
-29.4 -29.0
-22.8-17.7
-14.3
-60.0
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.01995–9
6
1996–9
7
1997–9
8
1998–9
9
1999–0
0
2000–0
1
2001–0
2
2002–0
3
2003–0
4
2004–0
5
2005–0
6
2006–0
7
2007–0
8
2008–0
9
2009–1
0
2010-1
1
2011-1
2
2012-1
3
2013-1
4
2014-1
5
2015-1
6
2016-1
7
2017-1
8
2018-1
9
2019-2
0
2020-2
1
Federal budget projection
Source: Department of Finance, RBC Economics Research
Federal government budgetary balanceBillions of dollars
ECONOMICS I RESEARCH 18
-10
-8
-6
-4
-2
0
2
4
6
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Statistics Canada, RBC Economics Research
Canada's real GDP growth Quarter-over-quarter % change, annualized rate
Forecast:
Annual Growth Rates
2016f
1.8
2014
2.5
2017f
2.3Real GDP
2015
1.2
ECONOMICS I RESEARCH 19
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Bank of Canada, RBC Economics Research Forecasts
%
Interest rates: Canada
10 Year Bond Yield
BoC Overnight Rate
Forecast
ECONOMICS I RESEARCH 20
2.8
2.5
1.8
1.2
1.0
0.9
1.5
-0.8
1.0
-3.5
-1.8
2.9
2.3
2.2
1.8
1.4
1.3
1.2
1.2
0.4
-0.1
-1.6
-4 -3 -2 -1 1 2 3 4 5
B.C.
ONT.
MAN.
CANADA
QUE.
N.S.
P.E.I
SASK.
N.B.
N.& L.
ALTA.
2015 2016
Sources: Statistics Canada, RBC Economics Research
Provincial real GDP growthAnnual % change, ranked by 2016 growth
ECONOMICS I RESEARCH 21
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