E Economic Outlook i O tl k Ottawa Chamber of Commerce/ Ottawa Business Journal: Mayor’s Breakfast Series Ottawa, Ontario 27 April 2012 MarkCarney Mark Carney Governor
Agenda � Three global forces � The consequences for Canada � The current outlook � What must be done? at ust be do e 2
Global Forces: Global Forces: The Rise of Emerging Market Economies The Rise of Emerging-Market Economies 3
Very robust growth in emerging markets Real GDP, Index 2007Q1 100, quarterly data Real GDP, Index 2007Q1=100, quarterly data Index Index 160 160 150 150 140 140 130 130 120 120 110 110 100 100 90 90 2007 2008 2009 2010 2011 China Emerging market and developing economies Note: Emerging market and developing economies is calculated using annual growth rate from IMF 2012 April WEO. Source: Statistics Canada, Bureau of Economic Analysis, China National Bureau of Statistics, IMF 2012 April WEO, Bank of Canada. Last observation: 2011Q4 4
Very robust growth in emerging markets Real GDP, Index 2007Q1 100, quarterly data Real GDP, Index 2007Q1=100, quarterly data Index Index 160 160 150 150 140 140 130 130 120 120 110 110 100 100 90 90 2007 2008 2009 2010 2011 U.S. Canada China Emerging market and developing economies Note: Emerging market and developing economies is calculated using annual growth rate from IMF 2012 April WEO. Source: Statistics Canada, Bureau of Economic Analysis, China National Bureau of Statistics, IMF 2012 April WEO, Bank of Canada. Last observation: 2011Q4 5
Emerging markets now account for bulk of growth Contribution to global growth Contribution to global growth Percentage contributions to global real GDP growth, annual data % 100 80 60 40 20 20 0 2000 2011 Advanced economies Emerging and developing economies Source: International Monetary Fund World Economic Outlook, Bank of Canada calculations Last observation: 2011 6
Massive, rapid urbanization Change in urbanized population Change in urbanized population Millions of people 600 500 400 300 200 100 100 0 f 1970 - 1990 1990 - 2010 2010 - 2030 More developed regions India & China Note: f denotes forecast Source: United Nations - World Urbanization Prospects 7
Global Forces: Global Forces: Elevated Commodity Prices Elevated Commodity Prices 8
Non-agriculture commodity prices up10-fold since WWII Real commodity prices in the post-war period Real commodity prices in the post war period 1946 = 100 Index Index 600 1600 Average industrial metals and energy Average industrial metals and energy 1400 prices (2002-2011, right axis) 500 1200 400 1000 Average industrial metals and energy prices (1971 2001, right axis) prices (1971-2001, right axis) 800 800 300 600 200 400 200 200 100 0 0 -200 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 Industrial Metals (left axis) Agriculture (left axis) Energy (right axis) Last observation: 2011 Source: Bank of Canada, U.S. Bureau of Labor Statistics 9
Commodity prices remain elevated Bank of Canada commodity price index (rebased to January 2009 = 100) Bank of Canada commodity price index (rebased to January 2009 100) Index 200 180 160 140 120 100 80 2009 2010 2011 2012 All commodities (US$) Non-energy commodities (US$) Energy commodities (US$) Note: April 2012 figures are calculated based on the average of daily spot prices up to 20 April 2012. Last observation: April 2012 Source: Bank of Canada 10
Large gap between Canadian and global oil prices Daily data US$/Barrel 10 0 -10 -20 -30 30 -40 -50 -60 May-2008 May-2009 May-2010 May-2011 Western Canadian Select minus West Texas Intermediate West Texas Intermediate minus Brent Western Canadian Select minus Brent Note: Values in April 2012 are estimates based on the average daily spot prices up to 13 April 2012. For Brent crude oil prices, front-month futures prices are used. Last observation: April 2012 Sources: Bank of Canada and Bloomberg 11
Global Forces: Global Forces: The Great Deleveraging The Great Deleveraging 12
Sharp increase in debt across developed world Changes in household, corporate and net government debt Changes in household, corporate and net government debt Percentage points g p as percentages of nominal GDP from 1980 to 2010 250 200 200 150 100 50 0 Canada Canada Germany Germany Australia Australia United United France France United United Japan Japan Greece Greece Spain Spain Italy Italy Portugal Portugal States Kingdom Note: Some figures refer to change from 1980 to 2009. Source: Cecchetti, Mohanty and Zampolli (2011) 13
U.S. non-financial debt near levels of Great Depression U S non financial debt to GDP ratio U.S. non-financial debt-to-GDP ratio % Percent of GDP 300 250 200 150 100 1916 1921 1926 1931 1936 1941 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 Source: U.S. Census Bureau data from 1916 to 1953, U.S. Flow of Funds data from 1954 to 2011, Bureau of Economic Analysis Last observation: 2011Q4 14
Weakest U.S. recovery since Great Depression U.S. Real GDP across economic cycles U.S. Real GDP across economic cycles Index Start of recession = 100, quarterly data 145 Start of the recession 135 125 115 105 95 85 Years before the Years after the start start of the recession t t f th i of the recession f th i 75 65 -2 -1 0 1 2 3 4 5 6 7 Range of past recession (1948 onward) U.S. current cycle Base-case projection Note: The Big Five modern financial crises are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development and Bank of Canada projections 15
Weakest U.S. recovery since Great Depression U.S. Real GDP across economic cycles U.S. Real GDP across economic cycles Index Start of recession = 100, quarterly data 145 Start of the recession 135 125 115 105 95 85 Years before the Years after the start start of the recession t t f th i of the recession f th i 75 65 -2 -1 0 1 2 3 4 5 6 7 R Range of past recession (1948 onward) f t i (1948 d) Th The Big Five modern financial crises Bi Fi d fi i l i U.S. current cycle Base-case projection Note: The Big Five modern financial crises are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development and Bank of Canada projections 16
Weakest U.S. recovery since Great Depression U.S. Real GDP across economic cycles U.S. Real GDP across economic cycles Index Start of recession = 100, quarterly data 145 Start of the recession 135 125 115 105 95 85 Years before the Years after the start start of the recession t t f th i of the recession f th i 75 65 -2 -1 0 1 2 3 4 5 6 7 Range of past recession (1948 onward) Range of past recession (1948 onward) The Big Five modern financial crises The Big Five modern financial crises U.S. current cycle Great Depression Base-case projection Note: The Big Five modern financial crises are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development and Bank of Canada projections 17
Rebuilding U.S. wealth will take a long time US$ US$ Household net worth to disposable income Household net worth to disposable income Ratio Ratio billions 6.5 9000 6.3 8000 6.1 7000 5.9 6000 5.7 5000 5.5 4000 5.3 3000 5.1 2000 4.9 1000 4.7 4.5 0 1990 1993 1996 1999 2002 2005 2008 2011 Wealth lost since 2007 peak W lth l t i 2007 k 20-year average Level of savings in 2011 Sources: U.S. Bureau of Economic Analysis, Federal Reserve Board and Bank of Canada calculations Last observation: 2011Q4 18
Rebuilding U.S. wealth will take a long time US$ US$ Household net worth to disposable income Household net worth to disposable income Ratio Ratio billions 6.5 9000 6.3 8000 6.1 7000 5.9 6000 5.7 5000 5.5 4000 5.3 3000 5.1 2000 4.9 1000 4.7 4.5 0 1990 1993 1996 1999 2002 2005 2008 2011 Wealth lost since 2007 peak W lth l t i 2007 k 20-year average Level of savings in 2011 Sources: U.S. Bureau of Economic Analysis, Federal Reserve Board and Bank of Canada calculations Last observation: 2011Q4 19
Euro-area recovery was weak, is over Euro area real GDP across economic cycles Euro area real GDP across economic cycles Index Start of recession = 100, quarterly data 115 Start of the recession 110 105 100 95 Years before the Years after the start start of the recession of the recession 90 -2 -1 0 1 2 3 4 5 6 Range of past recessions (1980 onward) The Big Five modern financial crises Current cycle Base-case projection Note: The Big Five modern financial crises include Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992). Sources: Eurostat and Organisation for Economic Co-Operation and Development 20
European tensions still elevated Yields on 10-year sovereign bonds, daily data Yields on 10 year sovereign bonds, daily data % % 8 7 6 5 4 4 3 2 1 0 2009 2010 2011 2012 Germany France Italy Spain Source: Bloomberg Last observation: 25 April 2012 21
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