Tracking Economic and Financial
Developments in the Current Global
Recession
Rob Wright
Deputy Minister of the Department of Finance
International Seminar on Timeliness, Methodology and
Comparability of Rapid Estimates of Economic Trends
May 27, 2009
Outline
•
Global Recession
•
Impact on Canada
•
Economic Action Plan
•
The Role of Data in Policy Development
2
Global Recession
3
Largest drop in U.S. housing market on record
U.S. Housing Starts and
Months Supply of Existing Homes
thousands,
at annual rates
U.S. S&P/Case-Shiller Home Price
Index
level, months supply at
current sales rate
2,400
12
index, 2000 Q1 =100
200
11
2,000
10
180
9
160
1,600
Housing Starts (left scale)
1,200
Months supply of existing
homes (right scale)
800
32%
8
7
140
6
5
120
4
400
Jan Jan Jan Jan Jan Jan Jan Jan Jan
2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources: U.S. Census Bureau and U.S. National Association of
Realtors.
3
100
2000 Q1
2002 Q1
2004 Q1
2006 Q1
2008 Q1
Source: S&P, Fiserv and MacroMarkets LLC.
4
Effects on cost and availability of credit
Credit Spreads
basis points
400
Canada (CDOR - OIS)
360
U.S. (LIBOR - OIS)
320
Euro area (LIBOR - OIS)
280
Lehman
Brothers
bankruptcy
240
200
160
ABCP crisis
120
80
40
0
-40
Jan 2007
May 2007
Sep 2007
Jan 2008
May 2008
Sep 2008
Jan 2009
May 2009
Notes: These spreads are a measure of banks’ funding costs relative to a risk-free rate and are a gauge of financial market stress and banks’ financing pressures. The rate on the
overnight-indexed swap (OIS) is used as a proxy for expected overnight rates. LIBOR is the London Interbank Offered Rate. CDOR is the Canadian Dealer Offered Rate.
Daily data up to and including May 8, 2009.
Source: Bloomberg.
5
Large financial losses worldwide
IMF’s Estimates of Financial Sector
Potential Writedowns (2007-2010)
World Equity Markets
% change since January 1, 2007
Billions, USD
0
4500
-10
4000
-20
3500
3000
-30
2500
-40
2000
-50
1500
-60
Total
1000
Banks
-70
500
Canada
U.S. (S&P U.K. (FTSE
(S&P/TSX)
500)
100)
EMU (DJ
Euro
STOXX)
Source: Bloomberg. Up to and including May 8, 2009.
0
World
U.S.
Europe*
Japan
*Europe includes Euro area and the U.K.
Source: IMF’s Global Financial Stability Report, April 2009.
6
Most severe and synchronized global recession
since WWII, with a rapid deterioration in
economic prospects in late 2008
Evolution of Private-Sector Average
Forecasts for Real GDP Growth in
2009
per cent
per cent
9.5
8.5
7
2
6
1
5
0
4
-1
3
-2
Canada (right)
U.S. (right)
Eurozone (right)
Japan (right)
per cent
3
China (left)
7.5
World Economic Growth
-3
-4
2
1
0
-5
-6
Jan Mar May Jul Sep Nov Jan Mar May
2008 2008 2008 2008 2008 2008 2009 2009 2009
Actual
-1
Forecast
6.5
-2
1970 1975 1980 1985 1990 1995 2000 2005
Date of forecast
Source: Blue Chip Economic Indicators - January 2008 to May 2009.
Note: World real GDP growth on a purchasing-power parity basis.
Source: International Monetary Fund World Economic Outlook, April 2009.
7
Impact on Canada
8
Canada is facing the recession from a position
of strength
•
Strong household and business
balance sheets
•
Housing market didn’t have same
excesses as the U.S.
•
Canadian banking sector considered
the soundest in the world
•
Best fiscal position in the G7
9
Canada has been less affected than other
industrialized nations…
Change in real GDP 2008Q2-2008Q4
0.0
-0.6
-2.0
-1.8
-1.9
-2.3
-4.0
-4.4
-6.0
Canada
United States
Euro Area
United Kingdom
Japan
Source: Statistics Canada; U.S. Bureau of Economic Analysis (advance report for 2009Q1); Eurostat Flash Estimates; U.K. Office for National
Statistics; Federal Statistical Office of Germany; National Institute for Statistics and Economic Studies of France; National Institute for Statistics of
Italy; Economic and Social Research Institute of Japan.
10
…but employment has been declining
Index of Total Employment
Index, January 2005 = 100
108
106
Canada
104
U.S.
102
100
U.S. enters
recession
98
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Canada enters
recession
Jan-08
Jul-08
Jan-09
Sources: Statistics Canada; U.S. Bureau of Labor Statistics .
11
Economic Action Plan
12
Key elements of Canada’s Economic Stimulus
• Help Canadians and Stimulate Spending ($12.8 billion)
EI/training/Tax relief
• Stimulate Housing Construction ($7.8 billion)
Social housing/Home Renovation and First-Time Home
Buyers’ Tax Credits
• Build Infrastructure ($11.8 billion)
Provincial/Territorial/Municipal/Federal
• Support Businesses and Community Adjustment ($7.5
billion)
Community Adjustment Fund/RInC/CCA/automotive
sector/clean energy technologies
13
Canada’s Economic Action Plan Compared to
Stimulus Packages in Other G7 Countries
Fiscal stimulus flowing in 2009 and 2010, share of GDP
5.0
4.5
4.0
3.5
3.0
2.5
ProvincialTerritorial
additional
ProvincialTerritorial from
Economic
Action Plan
2.0
1.5
1.0
0.5
0.0
Canada
Japan
U.S.
Germany
France
U.K.
Italy
Source: Government releases. For comparability, stimulus estimates have been put on a Canadian fiscal year basis (April-March) for France, Germany, Italy and the U.S.
*This represents the current estimate of the planned provincial spending.
14
Key element of Canada’s Economic Action Plan:
The Extraordinary Financing Framework
Insured Mortgage Purchase Program
$125 billion
New 10-year Canada Mortgage Bond
$10 billion
Canadian Lenders Assurance Facility
-
Canadian Life Insurers Facility
-
EDC and BDC
$13 billion
ABS Facility
$12 billion
Bank of Canada
$40 billion
Expanded authorities to strengthen financial system
15
Canada expected to be the least affected country
reflecting underlying strengths
IMF Economic Outlook for G7 Countries
2009
per cent
2010
per cent
0.0
1.5
-1.0
1.0
-2.0
0.5
-3.0
0.0
0.0
-4.0
-0.5
-5.0
-1.0
-6.0
-7.0
-1.5
JP
GER
IT
UK
FR
US
CAN
GER
UK
IT
US
FR
JP
CAN
Source: International Monetary Fund World Economic Outlook, April 2009.
16
The Role of Data in Public Policy
Development
17
The Role of Data in Public Policy Development
• Process of policy development is lengthy
 Research and analysis required to understand when
and where policy change and reform are needed
 Designing policy
 Developing consensus (political, public)
• We rely on high quality and timely data
throughout the process
18
How can statisticians improve public policy?
• Identify and close data gaps
• Priority to long term issues and trends
• But need to be able to adapt to current
developments, if possible
 Identify turning points
• Consult users
 Government, private sector, researchers
19
Turning Points
• Adjust existing products to be even more
relevant in current environment
• Labour Force Survey (LFS)—add questions
to address how people deal with
unemployment (training, schooling,
relocation)
• Survey of Employment, Participation and
Hours (SEPH)—add questions about sales
and production prospects across sectors of
the economy
20
Tracking Economic and Financial
Developments in the Current Global
Recession
Rob Wright
Deputy Minister of the Department of Finance
International Seminar on Timeliness, Methodology and
Comparability of Rapid Estimates of Economic Trends
May 27, 2009