the economic outlook...the economic outlook: canada’s economy to navigate rough seas pedro...
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The Economic Outlook:
Canada’s Economy to Navigate Rough Seas
Pedro Antunes, Chief Economist
March 23, 2020
Today’s Presenter
• Pedro Antunes
• Chief Economist,
• The Conference Board of Canada
2
Global Outlook
COVID-19 Driving Synchronized Global Slowdown
3
COVID-19 Impacts
4
▪ Direct impacts through production shutdowns and steep drop in consumer spending
▪ Global tourism spending will take a hit but it’s a net zero
▪ Halt to air and other passenger transportation lowered fuel demand and oil prices
▪ Impact on global supply chain will be noticeable
▪ Fear factor, consumer and business confidence, can exacerbate impacts
▪ Risk to financial markets, especially if outbreak is not contained quickly
World Economy in the Grips of a Major Downturn
• In January we expected global GDP to expand by 2.6 per cent—close to potential growth
• Devastation caused by coronavirus and steps to limit the spread will lead to a gain of only 1.7 per cent this year
• Output in China contracted sharply in January and February—real GDP growth for the entire year will be less than 4 per cent
• Italy, France, Germany, Spain and Japan likely to experience recessions in 2020
• All governments engaging in massive fiscal and monetary stimulus—will it be enough?
5
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Global Growth Takes a HitWorld real GDP per cent change
6
Sources: International Monetary Fund (IMF); The Conference Board of Canada.
China’s Economy
A ray of hope in containing the outbreak
7
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Real GDP Growth Inflation
COVID-19 will Cut China’s 2020 Forecastreal GDP, per cent change
8
Sources: Consensus Economics; The Conference Board of Canada.
Auto Sales in Chinamillions, passenger vehicles
9
Source: China Association of Automobile Manufacturers.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
26.0
28.0
30.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Canadian Exports to Chinamillions of current $
10
Source: Statistics Canada.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Primary sector Live or fresh Lobsters Mining & energy
11
U.S. Outlook
Unprecedented fiscal stimulus to avert election-year recession
Recent indicators Capturing Devastation in U.S. Economy
• U.S. box office sales for top 10 movies 50 per cent below averages in 2018-19
• Seated diners in restaurants down 80 per cent from a year ago
• Weekly jobless claims increased by 70,000 to 281,000 for week ending March 14
• Declines in equity markets have wiped out all the gains since President Trump took over
• Major auto manufacturers have shut down operations
12
U.S. Fiscal Response
• Congress ready to pass a $1.3 trillion stimulus package
• $50 billion for the airlines
• $300 billion for small businesses
• $150 billion for other sectors like energy devastated by plunge in oil prices
• $500 billion direct payment to all Americans—roughly $1,000 each
• Deferred tax payments for businesses and individuals
13
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Consumption Shock will Hurt U.S. EconomyU.S. real GDP growth, per cent change
14
Sources: Bureau of Economic Analysis; The Conference Board of Canada.
-12
-10
-8
-6
-4
-2
0
2
Where will the U.S. Federal Deficit Land?NIPA basis, billions of current $
15
Sources: Bureau of Economic Analysis; The Conference Board of Canada.
Oil Story
It is always dangerous to prophesy, especially about the future.
16
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2007 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
China & India World
17
Sources: U.S. Energy Information Administration; The Conference Board of Canada.
Annual Change in Global Liquids Consumptionmillions of barrels per day
World Oil Prices in Freefall
• Combination of collapsing demand linked to coronavirus and Russia and Saudi Arabia fight for market share sent world oil prices plunging to US$23 per barrel—in January WTI was as US$63 per barrel
• Russia has promised to boost production by 500,000 bpd while Saudis plan to bring full excess capacity of 2.3 million bpd online—incredible excess supply on global markets in midst of collapsing demand
• Saudis offering Russia’s customers steep discounts in Europe and elsewhere
• Russia may be able to outlast Saudis—government says it could survive on $25-$30 oil for six years, but should we believe Putin?
• Saudis need at least $80 oil to balance budget
• Shale producers need around $40 oil so many won’t survive unless big bailout rescues them
18
U.S. Oil Production and Rig Counts000s of barrels per day; number of rigs
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Sources: U.S. Energy Information Administration; Baker Hughes Inc.
.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
8,000
8,500
9,000
9,500
10,000
10,500
11,000
11,500
12,000
12,500
13,000Oil production (left scale) Rigs in operation (right scale)
28.0
28.5
29.0
29.5
30.0
30.5
31.0
31.5
32.0
32.5
33.0
33.5
34.0
34.5
35.0
Will OPEC Adjust?OPEC crude oil production, millions of barrels a day
20
Source: U.S. Energy Information Administration.
Canada’s Outlook
How Long to Flatten the Curve?
21
Flattening the Curve
Baseline forecast—6 weeks
Alternate forecast—24 weeks
22
Consumer Confidence Plunges in MarchIndex, 2014 = 100
23
Source: The Conference Board of Canada.
0
20
40
60
80
100
120
140Canada Alberta
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Household Spending had been a Pillar of Growth real consumer spending on goods and services, per cent change
24
Sources: Statistics Canada; The Conference Board of Canada.
Real spending on accommodation, food & beverage services, arts and entertainmentbillions of $2012
25
Sources: Statistics Canada; The Conference Board of Canada.
110
120
130
140
150
160
Baseline Alternate
Labour Market
Coming off a Record Year
26
2019—A Boon Year for Labour Markets
• Many developed economies are feeling the pinch of labour constraints and Canada is no exception
• 390,000 jobs were created in 2019, growth of 2.1 per cent
• In May 2019, Canada’s unemployment rate bottomed out at 5.4 per cent, a record low since the current labour force survey was launched in 1976
• Over the entire year, the unemployment rate averaged a record low of 5.7 per cent
• Job vacancies swelled to 563,000 in the third quarter
• Despite record immigration levels and rising labour force participation, the private, non-farm average hourly wage soared by an estimated 4.7 per cent—2.8 percentage points above inflation!
• Employment growth was strong through to February 2020…but March EI claims topped 500,000
27
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Baseline Alternate
Will Employers Hold on to Their Workforce?employment, per cent change
28
Sources: Statistics Canada; The Conference Board of Canada.
390,000 new jobs!
272,000
jobs lost
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
Baseline Alternate Natural Rate
Labour Market Could Slacken Quicklyper cent
29
Sources: Statistics Canada; The Conference Board of Canada.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Average Weekly Wages CPI
Robust Wage Gains Continue per cent change
30
Sources: Statistics Canada; The Conference Board of Canada.
Household debt at peak levels but….total household debt and net worth, ratio to disposable income, per cent
31
Source: Statistics Canada.
80
90
100
110
120
130
140
150
160
170
180
190
… debt service burden remains lowmortgage and consumer debt service as a share of disposable income, per cent
32
Sources: Statistics Canada; The Conference Board of Canada.
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
Toronto, Vancouver Markets on the MendMLS HPI; January 2015 =100; monthly to February 2020
33
Source: Canadian Real Estate Association.
100
110
120
130
140
150
160
170
2015 2016 2017 2018 2019 2020
Canada Vancouver
Toronto Montréal
95
100
105
110
115
120
125
130
135Renovations Vehicle purchases Funiture and household durables
Purchases of Interest Rate Sensitive Itemsreal spending on interest sensitive categories, index 2012Q1=100
34
Sources: Statistics Canada; The Conference Board of Canada.
Policy Measures to the Rescue
Pulling back the slingshot
35
Monetary Stimulus Leans on Easier Credit
• Bank of Canada cuts its overnight rate by 50 basis points on March 4th and then another 50 basis points on March 13th
• OSFI dropped its domestic stability buffers—essentially reserve requirements—creating an additional $300 billion in lending capacity.
• The GoC re-introduced the Insured Mortgage Purchasing Program (IMPP) to buy up to $50 billion of insured mortgage through CHMC to ensure banks and mortgage lenders remain well funded
• The BoC will also purchase CMBs (Canadian Mortgage Bonds). Plans to buy up to $500M in CMBs per week
• GoC announced $10 Billion in additional loans through EDC and BDC and another $7.1 billion in loans to businesses
36
Fiscal Measures to top 3 Per cent of GDP
• On March 18th, the Federal Government announced an $82 billion rescue package amounting to 3.3 per cent of GDP
• $27 billion in direct support to workers and businesses
➢ Boost EI payments and insure those that do not qualify ($900 weekly)
➢ Top up child benefits $300 per child and GST credit for modest income families ($400 individuals, $600 couples)
➢ Small businesses will get a 10% wage subsidy for three months
• $55 billion in tax deferrals for businesses and households—taxes deferred to August and student loan payments deferred for 6 month, no interest
• Provincial/Territorial/Municipal governments and crown corps also providing support
37
0
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Canada United States
Central Banks Push Hard on the Gas Pedal Canadian Bank Rate and U.S. Federal Funds Rate
38
Sources: Statistics Canada; The Conference Board of Canada.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2011 12 13 14 15 16 17 18 19 20f 21f
Baseline Alternate Savings rate
Household Spending Had Been a Pillar of Growthreal consumer spending, per cent change
39
Sources: Statistics Canada; The Conference Board of Canada.
Canada’s Trade Outlook
Prospects were already dim…
40
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Baseline Alternate
Real Non-Residential Private Investmentper cent change
41
Sources: Statistics Canada; The Conference Board of Canada.
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20f 21f
Baseline Alternate
Real GDP Will Take a HitCanada’s real GDP, per cent change
42
Sources: Statistics Canada; The Conference Board of Canada.
The Bottom Line…
• Global economy will feel the effects of COVID-19—a recession is likely in many countries
• Canada and the United States went into February 2020 on a solid footing but things have deteriorated precipitously
• Economic impact will depend entirely on our success (in Canada and the United States) at containing the outbreak
• Tourism, accommodation and food, entertainment and recreation, oil patch and manufacturing will suffer sharp declines
• Consumer spending, especially on durable goods, should rebound quickly once the crisis is over
43
How might COVID-19 change the world…
• Weiji—turn a challenge into an opportunity
• Using technology for education, doctor visits, telecommuting
• Permanent boost to online sales and the digital economy
• Supply chains shortened—kept within the domestic economy
• Deeper debt for households, governments and businesses—re-emergence of sovereign debt issues
44
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