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Aron Gampel Vice-President & Deputy Chief Economist

Navigating Through Volatile Times . Aron Gampel Vice-President & Deputy Chief Economist. Toronto, Ontario February 14, 2012. Global Output Moves To A Slower Growth Trajectory. Real GDP. annual % change. 2004-07.

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Aron Gampel Vice-President & Deputy Chief Economist

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  1. Navigating Through Volatile Times  Aron Gampel Vice-President & Deputy Chief Economist Toronto, Ontario February 14, 2012

  2. Global Output Moves To A Slower Growth Trajectory Real GDP annual % change 2004-07 Source: Scotia Economics, Bloomberg, BEA, Statistics Canada, Eurostat.

  3. America’s Growth Engine & Competitive Realignment Uneven Sales Performance Exports to High Growth Regions index: January 2009 = 100 index: January 2009 = 100 Auto Sales Pacific Rim Rest of World Total Home Sales South & Central America Source: Bloomberg. Source: Bloomberg, NAR.

  4. European Debt Fuels Economic And Market Volatility… Fiscal Deficits Debt General Government,2010, % of GDP General Government,2010, % of GDP n/a *2011f: 10.3%; 2010: 32% reflects extensive bank support. Source: IMF September 2011, Scotia Economics.

  5. … That Will Impede Medium-Term Growth Internationally Fiscal Deficits Debt General Government,2010, % of GDP General Government,2010, % of GDP Emerging Economies Emerging Economies Source: IMF September 2011, Scotia Economics.

  6. Canada Leads Most Major Nations In Fiscal Repair … Looking Forward Budget Balances(FY11*, % of GDP) Target for Balanced Books** NL balanced Canada Federal forecast NS FY14 SK*** Aggregate Provincial balanced AB*** FY14 FY14 BC MB FY15 QC FY14 PE FY14 U.S. Federal ex. Social Security Federal FY17 NB FY15 budget balances % of GDP FY18 ON Source: Budget documents, Statistics Canada, BEA, Scotia Economics. *Final results except for NL. SK on a General Revenue Fund basis. **Without using reserve funds. ***After transfers. Source: Budget documents, Statistics Canada.

  7. … And Has A Competitive Tax Advantage Marginal Effective Tax Rates on Capital Corporate Income Tax Rates* 2011, % 2012, % Japan National Average assumes 10% Prov. CIT rate and cross-Canada HST U.S. France U.S. Germany Canada Italy U.K. Small Developed Countries OECD Canada Source: Finance Canada, Finance Ontario. * Central plus sub-central rates. Source: OECD.

  8. forecast forecast Monetary Policies Geared To Reviving Growth Central Bank Rates 10-year Bond Yields % yield U.S. Canada U.S. Eurozone Germany Canada Source: Bank of Canada, U.S. Federal Reserve,European Central Bank, Scotia Economics. Source: Scotia Economics, Bloomberg.

  9. Canada’s Solid But Uneven Employment Recovery ... As Manufacturing Headwinds Rise Employment Cresting ... index: 2004 Q1=100 index: 2004 Q1 = 100 * * Construction * Canada Natural Resources * Euro zone Services Manufacturing * U.S. * Source: Statistics Canada, Scotia Economics. *January 2012.

  10. Canadian Household Debt Is A Source Of Concern Canadians’ Debt-To-Income Now Higher … … But Less Debt Used To Buy Assets household* credit liabilities o/s as % of PDY household* debt o/s as % of assets U.S. U.S. Canada Canada Mortgage Delinquencies Existing Home Sales $000 % of total loans past due three or more months units, 000s U.S. MLS Sales MLS Average Price Canada * Includes households and unincorporated business.Source: U.S. Federal Reserve, Statistics Canada, Scotia Economics. Source: MBA, CBA.

  11. Loonie Strength, U.S. Weakness Hit Canadian Exports The Loonie Continues to Fly High … … Despite Weaker Trade Balances WTI Oil US$/bbl CADUSD C$ billions, s.a. WTI Oil(LHS) Commodities Merchandise Trade Canadian Dollar(RHS) forecast Merchandise Trade ex. Commodities Source: Scotia Economics, Statistics Canada, Bloomberg.

  12. Focus On Global Markets For Long-Term Growth Exports (Goods & Services) World Exports % of GDP, 2010 % of world GDP Source: World Bank, Scotia Economics. World exports for 2011 is an estimate.

  13. Focus On Global Markets For Long-Term Growth Canadian Exports World Exports % share of total exports, 2011 ytd % of world GDP Source: World Bank, Strategis, Scotia Economics, ytd = Jan - Nov. World exports for 2011 is an estimate.

  14. Emerging Market Strength Is Helping To Rebalance Growth … Population Global GDP (PPP) billions, 2010* Korea % of global GDP, 2010* Thailand Vietnam Indonesia Canada Other Asia/Oceania U.S. Restof Asia(ex. Japan) Brazil Euro area Russia Japan Mexico * 2010 IMF forecast.

  15. Emerging Market Strength Is Helping To Rebalance Growth … Population billions, 2010* Korea Thailand Vietnam Indonesia Canada U.S. Restof Asia(ex. Japan) Brazil Euro area Russia Japan Mexico *Market exchange rate, USD. Source: Bank of Canada, IMF WEO estimates, World Bank Development Indicators, CIA Factbook. * 2010 IMF forecast.

  16. … But Is Reshaping The Global Manufacturing Landscape forecast forecast Motor Vehicle Production Motor Vehicle Sales millions of units millions of units EU & Japan Europe North America* North America* Brazil, Russia, India & China China *Includes light trucks in North America. Source: Scotia Economics, Ward’s Automotive.

  17. forecast … But Is Reshaping The Global Manufacturing Landscape Housing Starts Motor Vehicle Sales millions of starts, 2011e millions of units EU & Japan North America* Brazil, Russia, India & China Source: Scotia Economics, IMF, Bloomberg.

  18. forecast … But Is Reshaping The Global Manufacturing Landscape Global Oil Consumption Motor Vehicle Sales millions of units 1999 = 100 EU & Japan China North America* Emerging Asia Brazil, Russia, India & China United States *Includes light trucks in North America. Source: Scotia Economics, Ward’s Automotive.

  19. Ontario’s Trade Needs More East-West, Less North-South International Trade Balance Ontario Exports Beyond the U.S. EU27 Other Asia Mexico Latin America Japan China $ billions % of international merchandise trade receipts India Source: Strategis trade data. Trade With Asia* Interprovincial Trade Balance % of total, 2011ytd $ billions Source: Statistics Canada, Ontario Economic Accounts. *ytd, 2011Q3 * Excludes Middle East; domestic basis. Source: Strategis trade data. 2011ytd = Jan-Nov.

  20. Canada’s Competitive Challenge 2000-2010 % change, compound annual growth Source: Scotia Economics.

  21. Canada’s Competitive Challenge 2000-2010 % change, compound annual growth Source: Scotia Economics.

  22. Canada’s Competitive Challenge 2000-2010 % change, compound annual growth Source: Scotia Economics.

  23. Canada’s Competitive Challenge 2000-2010 % change, compound annual growth Source: Scotia Economics.

  24. Canada’s Competitive Challenge 2000-2010 % change, compound annual growth Source: Scotia Economics.

  25. Auto Industry Investment Shifts Away From Canada Mexico – The Big NAFTA Winner Investment Slumps in Canada, But Has Stabilized in the U.S. & Mexico* % of North American output 000s of USD Canada Canada U.S. Mexico Mexico *Investment per vehicle produced in each country. Source: Scotia Economics, Global Auto Report.

  26. forecast forecast Growth And Income Prospects Best In Resource Regions Nominal GDP Per Capita Nominal GDP Per Capita index: 2004=100 index: 2004=100 Newfoundland and Labrador Saskatchewan Manitoba New Brunswick Alberta Quebec B.C. P.E.I. Nova Scotia Ontario Source: Statistics Canada, Scotia Economics.

  27. Demographic Trends Favour Western Canada Interprovincial Migration International Migration % of population, 2011 ytd % of population, 2011 ytd Source: Statistics Canada, ytd = 2011 Q1-Q3.

  28. * Annual averages. Source: Scotia Economics, Bloomberg. Forecasts as of February 2, 2012 .

  29. Disclaimer This report has been prepared by Scotia Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank Group nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.

  30. Navigating Through Volatile Times  Aron Gampel Vice-President & Deputy Chief Economist Toronto, Ontario February 14, 2012

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