The Global and North American Outlook
Glen Hodgson, Senior Vice President and Chief Economist of The Conference Board of Canada
The global recovery was slowly building positive momentum up to the end of August. However, financial
markets have come under pressure due to a number of negative factors -- economic slippage in Europe,
a sharp drop in global oil prices, increased geo-political risks in Ukraine and the Middle East, and slower
growth in a number of emerging markets. Recent tragic events in Ottawa have added a Canadian risk
factor.
The Conference Board believes that the psychological “fear factor” has amplified the downward impact
on financial markets of these negative economic and geo-political factors. But markets may have underestimated the positive economic forces at work, notably the strengthening U.S. recovery and the benefit
of lower oil prices for consumers. Notwithstanding the steady withdrawal of exceptional monetary
stimulus by the Fed, all the evidence points toward a recovery in the U.S. economy that is real and
sustainable, driven by the private sector. We expect U.S. growth to exceed 3 per cent in 2015. As a
result, Canadian exports and private investment should strengthen in 2015, helping to lift Canadian GDP
by 2.5 per cent next year. Growth in Alberta and western Canada will be stronger than growth in other
regions.
In addition, sharply lower oil prices are obviously bad news for oil producers and their suppliers, but
good for consumers almost everywhere, plus good for businesses that use oil-based inputs. Consumers
and many businesses will have more cash available to spend on other goods and services. Markets and
oil producers in particular will have to adapt their business practices if prices remain lower for an
extended time, but overall, lower oil prices are a net positive for the global economy, and more or less
neutral for Canada.
Our advice? Keep calm, adapt, and carry on.
The Economic Outlook:
Despite the Turmoil, Better Prospects in 2015
Glen Hodgson
Senior Vice-President and Chief Economist, The Conference Board of Canada
conferenceboard.ca
Uneven Growth in Global Economy
Per cent change, real GDP
.
7.0
2013
2014
2015
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
Japan
EU
North America Latin America
Asia Pacific
Asia Pacific
(excl Japan)
Source: Consensus Economics
2
U.S. Outlook
• Despite recent financial turmoil, U.S. economy to expand
near 3 per cent pace in second half of 2014
• U.S. growth even stronger in 2015
• Robust recovery in the private domestic economy– jobs,
housing, autos, investment
• QE ramping down, will end in 2014
• Federal deficit declining, but will rise again due to
entitlements driven by aging population
• Increasing U.S. energy self-reliance fueling re-shoring of
investment and jobs
3
U.S. Commercial Bank Lending On the Rise
$ billions, commercial and industrial loans
1,800
1,700
1,600
1,500
1,400
1,300
1,200
Source: Federal Reserve
4
U.S. Consumer Confidence.
1985 = 100.
120
110
100
90
80
70
60
50
40
30
20
Source: The Conference Board Inc.
5
U.S. Vehicle Sales Back to Normal.
millions, annualized.
17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
9.0
8.0
Source: Moody’s Economy.com
6
U.S. Housing Starts.
000s
1,900
1,700
1,500
1,300
1,100
900
700
500
06
07
08
09
10
11
12
13
14f
15f
16f
Sources: Bureau of Economic Analysis; The Conference Board of Canada.
7
U.S. Labour Market.
change in U.S. employment, 000s.
500
400
300
200
100
0
-100
-200
-300
-400
-500
-600
-700
-800
-900
Source: Bureau of Economic Analysis.
8
U.S. Real Consumer Spending
per cent change
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
03
04
05
06
07
08
09
10
11
12
13
14f
15f
Sources: BEA; The Conference Board of Canada.
9
US Oil Production
millions of barrels per day
14.0
12.0
10.0
8.0
6.0
4.0
80
90
00
10
14
20
Source: IEA.
10
US Oil Imports
millions of barrels per day
14.0
12.0
10.0
8.0
6.0
4.0
80
90
00
10
14
20
Source: IEA.
11
U.S. Federal Deficit
NIPA basis, billions of current $
400
200
0
-200
-400
-600
-800
-1,000
-1,200
-1,400
Sources: BEA; The Conference Board of Canada.
12
U.S. Real GDP Growth
per cent change
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
03
04
05
06
07
08
09
10
11
12
13
14f
15f
Sources: Bureau of Economic Analysis The Conference Board of Canada.
13
Weak Canadian Performance:
the “New-Normal”
• Canadian growth continues to hover at 2 per cent
• Export sector recovery in 2015 should boost GDP growth
• Labour markets will slowly tighten, limiting growth
• Rising interest rates (eventually) will constrain increases in
household spending
• Business investment growth remains weak
• Fiscal restraint will continue through the foreseeable future
14
The Loonie and the Oil Price
(WTI $US, $US/$C)
Dollar (left)
Oil Price (right)
1.10
120
1.05
110
1.00
100
0.95
90
0.90
80
0.85
70
0.80
60
0.75
50
0.70
40
0.65
30
0.60
20
Sources: The Conference Board of Canada; U.S. EIA; Statistics Canada.
15
Export Volumes
per cent change
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
-10.0
-12.0
-14.0
03
04
05
06
07
08
09
10
11
12
13
14f
15f
Sources: Statistics Canada; The Conference Board of Canada.
16
Short-Term Interest Rates
90-Day Treasury Bill Rates
7
Canada
United States
6
5
4
3
2
1
0
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14f 15f 16f 17f
Sources: Statistics Canada; U.S. Bureau of Economic Analysis; The Conference Board of Canada.
17
Employment Growth
per cent change
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
266,000
jobs lost
-1.0
-1.5
-2.0
03
04
05
06
07
08
09
10
11
12
13
14f
15f
Sources: Statistics Canada; The Conference Board of Canada.
18
Growth in Industrial Composite Average
Weekly Wage versus CPI
per cent change
Average Weekly Wages
CPI
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
03
04
05
06
07
08
09
10
11
12
13
14f
15f
Sources: Statistics Canada; The Conference Board of Canada.
19
Real Consumer Spending
per cent change
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
03
04
05
06
07
08
09
10
11
12
13
14f
15f
Sources: Statistics Canada; The Conference Board of Canada.
20
Canada, Housing Starts vs. Demographic
Requirements
000s
Housing Starts
Household Formation
240
220
200
180
160
140
120
Sources: Canada Mortgage and Housing Corporation; The Conference Board of Canada.
21
Real Business Investment
non-residential structures and machinery, per cent change
12.0
8.0
4.0
0.0
-4.0
-8.0
-12.0
-16.0
-20.0
03
04
05
06
07
08
09
10
11
12
13f
14f
15f
Sources: Statistics Canada; The Conference Board of Canada.
22
Federal and Provincial Gov’t Net Debt
as a share of GDP, 2013-14
60%
50%
40%
30%
20%
10%
0%
-10%
N.L.
P.E.I.
N.S.
N.B.
Que.
Ont.
Man.
Sask.
Alta.
B.C.
Federal
Sources: The Conference Board of Canada; Statistics Canada; various government budgets.
23
Canada’s Real GDP Growth
per cent change
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
03
04
05
06
07
08
09
10
11
12
13
14f
15f
Sources: Statistics Canada; The Conference Board of Canada.
24
2015 Real GDP by Province.
per cent change, basic prices, $2007.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
AB
BC
MAN
ONT
SASK
QUE
PEI
NS
Canada: 2.7%
NB
NL
Sources: The Conference Board of Canada; Statistics Canada
25
Implications
• Financial market turbulence, geo-political risks
• Resurgence in U.S. economy should sustain global
economy and fuel Canada’s trade performance
• Canadian growth moderate due to government and
consumer de-leveraging, weak business investment
• Wages growing faster than inflation as labour markets
slowly tighten
• Restoring fiscal balance a priority for feds and provinces
26
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