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New Year, New Promise

New Year, New Promise. Aron Gampel Vice-President & Deputy Chief Economist Scotiabank Economics. March 5, 2013. Canada’s Growth Performance At High End Of G7 Trends. Cumulative Output Rise From 2009 Trough. Cumulative Output Rise From Prior Peak. Euro zone (ex. Germany).

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New Year, New Promise

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  1. New Year, New Promise Aron Gampel Vice-President & Deputy Chief Economist Scotiabank Economics March 5, 2013

  2. Canada’s Growth Performance At High End Of G7 Trends Cumulative Output Rise From 2009 Trough Cumulative Output Rise From Prior Peak Euro zone (ex. Germany) Euro zone (ex. Germany) % change % change Source: DataInsight, Scotiabank Economics.

  3. Canada’s Performance Underpinned By A Diversified Economy Canadian Output Canada’s Primary Sector Output index, 2004=100 Construction (6%) index, 2004=100 Agriculture & Fishing (2%) Services (72%) Total Oil, Gas & Coal (3%) Utilities (3%) Mining (1%) Primary (11%) forecast forecast Forestry & Lumber (2%) Manufacturing (9%) Bracketed numbers represent share of total output. Source: Statistics Canada, Scotiabank Economics.

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

  5. Rebuilding Momentum, But Slowly Real GDP annual % change 2004-07 Source: Bloomberg, U.S. BEA, Statistics Canada, Eurostat, Scotiabank Economics.

  6. forecast forecast U.S. Begins To Play Catch-Up In Big-Ticket Purchases Housing Starts Motor Vehicle Sales index: 2004=100 index: 2004=100 Canada Canada U.S. U.S. Source: Scotiabank Economics, CMHC, U.S. Census Bureau, Ward’s Automotive.

  7. Canadian Housing Activity Adjusting Lower For Longer Existing Home Sales Existing Home Prices 000s of units, annualized $000s, national average 10-year average 10-year average Source: CREA, Scotiabank Economics.

  8. From Fiscal Stimulus To Fiscal Drag Real Government Spending – Canada Real Government Spending – U.S. annual % change annual % change 0% Source: Statistics Canada, U.S. BEA, Scotiabank Economics.

  9. Faster Imports, Slower Exports Erode Canada’s Trade Performance Canadian Merchandise Trade Balances Canadian Dollar And Oil Prices CADUSD WTI Oil US$/bbl C$ billions, s.a. Parity Commodities $100/bbl WTI Oil(LHS) Merchandise Trade Merchandise Trade ex. Commodities Canadian Dollar(RHS) forecast Source: Statistics Canada, Bloomberg, Scotiabank Economics.

  10. Canada’s Large Current Account Deficit Will Be Slow To Unwind ¹ Includes industrial M&E, motor vehicles & parts, aircraft and other transportation equipment, ² industrial materials, special transactions, and other items. Source: Statistics Canada, Scotiabank Economics.

  11. Less Financial Strains In Canada, But Risks Persist Mortgage Delinquencies Government Budget Imbalances forecast Canada Federal % of total loans past due by three or more months Aggregate Provincial U.S. U.S. Federal ex. Social Security Canada budget balances % of GDP Fiscal year-ends: U.S. federal – Sept. 30, Canada – March 31. Source: CBA, MBA, CMHC, U.S. Census Bureau, Scotiabank Economics. Source: U.S. BEA, Statistics Canada, Budget documents; Nominal GDP and federal forecasts: Scotiabank Economics.

  12. Global Industrial Activity Reviving, But Slowly Global Orders And Production Record Aircraft Backlog index 6 month annualized % change backlog Thousands of Units Global New Orders (LHS) Years Global Industrial Production (RHS) Source: Bloomberg, J.P. Morgan, CPB Netherlands Bureau for Economic Policy Analysis, Scotiabank Economics.

  13. forecast Profits And Large Cash Holdings to Underpin Investment Spending … and Business Fixed Investment Growth In Corporate Profits … index, quarterly, zero=recession trough y/y % change Canada United States Source: U.S. BEA, Statistics Canada, Scotiabank Economics.

  14. forecast Non-Residential Construction Much Stronger In Canada Non-Residential Construction Office Vacancy Rates % index: 2004Q1=100 U.S. Calgary Canada Toronto Canada Vancouver U.S. Source: Statistics Canada, U.S. BEA, Cushman & Wakefield, CBRE, Scotiabank Economics.

  15. forecast forecast Yield Curve – Flatter Now, Steeper Later , 10-year Bond Yields Central Bank Rates yield % U.S. U.S. Canada Canada Germany Eurozone Source: Bank of Canada, U.S. Federal Reserve, European Central Bank, Scotiabank Economics. Source: Bloomberg, Scotiabank Economics.

  16. forecast forecast Less Inflation Risk Now, More Later Consumer Price Inflation Central Bank Rates Average annual % change % U.S. U.S. Eurozone Canada Canada Eurozone Source: Statistics Canada, U.S. BLS, Bloomberg, Scotiabank Economics. Source: Bank of Canada, U.S. Federal Reserve, European Central Bank, Scotiabank Economics.

  17. Canada – Solid Fundamentals, Better Long-Term Growth Prospects Employment Unemployment Rate index, 2004 Q1=100 % Canada Germany Euro zone (ex. Germany)* U.K. U.S. (ex. Germany) * index 2005Q3=100, Q3/Q3, NSA. Source: Statistics Canada, U.S. BLS, Eurostats, Bloomberg, Scotiabank Economics.

  18. Canada – Solid Fundamentals, Better Long-Term Growth Prospects Population Growth Net Immigration 000s population growth rate, 2000-2011 Ontario Western Canada Quebec Atlantic Net Interprovincial Migration Western Canada 000s Atlantic 0% Quebec Ontario (ex. Germany) Source: Statistics Canada, IMF, Scotiabank Economics.

  19. Canada – Solid Fundamentals, Better Long-Term Growth Prospects Bank Share Price Performance • Canada’s banking system ranked the world’s soundest for the 5th consecutive year -- World Economic Forum’s Global Competitiveness Report, 2008-11. • Canadian financial institutions make up 7 of the world’s 50 safest banks -- Global Finance’s World’s 50 Safest Banks, 2012. • Canada is one of 11 countries (in addition to Australia, Denmark, Norway, Singapore, Sweden and Switzerland) whose sovereign debt is ‘AAA’ rated with a stable outlook, and one of 13 ‘AAA’ countries which includes The Netherlands with either stable or negative outlooks. • Scotiabank named 2012 Bank of the Year by FT’s The Banker. % change Source: Bloomberg, Scotiabank Economics.

  20. Canada – Solid Fundamentals, Better Long-Term Growth Prospects Marginal Effective Tax Rates on Capital Corporate Income Tax Rates* 2012, % 2012, % Japan National Average assumes 10% Prov. CIT rate and cross-Canada HST U.S. France U.S. Germany Italy Canada U.K. Small Developed Countries OECD Canada Source: Finance Canada, Finance Ontario, Scotiabank Economics. * Central plus sub-central rates. Source: OECD, Scotiabank Economics.

  21. Canada – Solid Fundamentals, Better Long-Term Growth Prospects Commodities Dominate Exports International Investment In Canada % share of total export receipts, 2012. C$ billions Portfolio Inflows All Other Goods 35% Agri-Food 7% Forest Products 5% Vehicles & Parts 14% Mining 14% Energy 24% Foreign Direct Investment Commodities 55% Source: Statistics Canada, Scotiabank Economics.

  22. Canada Must Focus More On Global Markets For Long-Term Growth … Canadian Exports World Exports % share of total exports, 2012 % of GDP, 2011 * Excluding Mexico. Source: WTO, IMF, Strategis, Scotiabank Economics.

  23. … But Competitive Challenges Persist … 2000-2011 % change, compound annual growth Wages Productivity Unit Labour Costs (local currency) Unit Labour Costs (USD) Wages Productivity Unit Labour Costs (local currency) Currency (against USD) Unit Labour Costs (USD) Wages Productivity Unit Labour Costs (local currency) 0 Currency (against USD) Unit Labour Costs (USD) Source: U.S. BLS, Scotiabank Economics.

  24. … And Trade Prospects Internationally May Be Slightly Tempered The 3 Percentage Point Gap ... ... Will Likely Narrow ¹ volumes, real GDP. ² volumes of goods & services. Source: IMF, Scotiabank Economics.

  25. Emerging Market Economies – Consensus Growth Leaders Real GDP, average annual % change 1980s 1990s 2000s 2010s 1980s 1990s 2000s 2010s 1980s 1990s 2000s 2010s 1980s 1990s 2000s 2010s 1980s 1990s 2000s 2010s Bracketed figures represent percent share of the global economy. Source: Consensus Forecasts Global Outlook, October 2012.

  26. Emerging Market Economies Have More Financial Flexibility Current Account Balance Gross & Net Debt General Gov’t, 2012, % of GDP 2012, % of GDP Germany Euro zone Gross National Savings Foreign Reserves 2012 Q4, US$ trillions 2012, % of GDP * Emerging and Developing markets. Source: IMF, Bloomberg, Scotiabank Economics.

  27. Emerging Market Economies’ Have Stronger Growth Dynamics *Market exchange rate, USD.Source: IMF WEO October 2012 (estimates), Ward’s Automotive Reports, CIA World Factbook.

  28. Demographics Will Continue To Drive Emerging Market Economies … Population Demographic Trends billions, 2010* Change in Population 2011 – 2030 (millions) Korea Thailand Vietnam Indonesia Canada Change in Urbanized Population U.S. Restof Asia(ex. Japan) millions of people Brazil Euro area Russia Japan Mexico Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate.

  29. … Spending Power … Population Growth In Personal Disposable Income billions, 2010* index: 2004=100 Korea Thailand Vietnam Indonesia China (Urban) Canada U.S. Restof Asia(ex. Japan) Canada Euro zone Brazil U.S. Euro area Russia Germany U.K. Japan Mexico Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate. Source: Bloomberg, IMF, StatistischenBundesamtes, Scotiabank Economics.

  30. … And Oil Consumption … Population Global Oil Consumption billions, 2010* Korea Index, 1999=100 China Thailand Vietnam Indonesia Canada Emerging Asia U.S. Restof Asia(ex. Japan) Brazil Euro area United States Russia Japan Mexico Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate. Source: Statistics Canada, Bloomberg, Scotiabank Economics.

  31. … Reshaping The Global Manufacturing Landscape forecast forecast Motor Vehicle Production Auto Sales millions of units millions of units Europe Europe North America* North America* China China *Includes light trucks in North America. Source: Scotiabank Economics, Ward’s Automotive.

  32. Trends In Canadian Exports By Product Source: Industry Canada, Scotiabank Economics.

  33. Trends In Canadian Imports By Product Source: Industry Canada, Scotiabank Economics.

  34. Economic & Market Outlook Source: Scotiabank Economics, Bloomberg. Forecasts at February 28, 2013

  35. Disclaimer TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. This report has been prepared by Scotiabank 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 nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.

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