GLOBAL ECONOMIC OUTLOOK CANADIAN CONSTRUCTION ASSOCIATION VIRTUAL - PowerPoint PPT Presentation

GLOBAL ECONOMIC OUTLOOK CANADIAN CONSTRUCTION ASSOCIATION VIRTUAL BRIEFING Peter Hall - EDC Economics Forecast as of March 12, 2020 Insights on the world's key economies GDP growth, commodity prices, interest and exchange rates.

HIGHLIGHTS • Global recession; worst moment since 2008-09 • First half of 2020 is the hard part • 2 waves: China; the OECD (US, Jap, EU, Mex, Can) • All industries not hit equally • Most will need assistance thru Q3 • Pattern of growth 2

CHINA: INDICATOR OF WHAT’S COMING? Motor vehicle sales, China – x10,000 units 300 250 200 150 100 50 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 3

CHINA: INDICATOR OF WHAT’S COMING? 4 Retail sales, China – SA, M/M change, % 2 0 -2 -4 -6 -8 -10 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4

COVID-19: EFFECT ON THE ECONOMY Duration tion GDP Depth th time me 5

COVID-19: EFFECT ON THE ECONOMY 6

OUTLOOK UNDER REVISION! • OECD: old forecast obsolete • IMF: big downward revisions coming • IIF: global growth from 2.6% → 1.6% → -1.5% • Canadian banks revising down (Q2: -10% to -30%) • Moving target! • EDC Economics forecast process 7

CHANGES FROM PREVIOUS FORECAST Global Economic Outlook 2019 2020* 2021* Real GDP Growth (percentage point change) Developed countries 0.0 -1.7 1.1 Canada 0.0 -1.5 1.7 United States -0.1 -1.5 1.4 Eurozone 0.0 -1.7 1.0 Germany 0.0 -1.7 0.3 France 0.0 -1.7 1.0 United Kingdom 0.3 -0.8 0.6 Japan -0.3 -2.5 2.0 Emerging countries -0.3 -2.3 1.1 China 0.0 -2.8 2.3 India -3.0 -1.8 1.0 Brazil 0.1 -0.5 0.9 Mexico -0.3 -1.7 0.5 Total World -0.2 -2.1 1.1 Note: * denotes the forecast period. Source: EDC Global Economic Outlook, March 2020 8

REAL GDP GROWTH Global Economic Outlook 2019 2020* 2021* (Annual % change) Developed countries 1.7 0.2 3.7 Canada 1.6 0.4 3.8 United States 2.3 0.9 4.7 Eurozone 1.2 -0.4 2.8 Germany 0.6 -0.6 2.1 France 1.2 -0.4 2.5 United Kingdom 1.4 0.1 2.9 Japan 0.7 -2.2 2.9 Emerging countries 3.5 2.4 6.3 China 6.1 3.4 8.8 India 4.3 5.8 8.8 Brazil 1.1 1.5 3.4 Mexico -0.1 -0.5 2.7 Total World 2.8 1.6 5.3 Note: * denotes the forecast period. Source: EDC Global Economic Outlook, March 2020 9

IMMINENT RECESSION: WHERE’S THE BUBBLE? Housing then and now (surplus/deficit), ‘000 units 4000 3000 2000 1000 0 -1000 2008-09 -2000 Current -3000 -4000 0 10 20 30 40 50 60 70 80 90 10

CANADA’S HOUSING MARKET BUBBLE Housing starts, requirements, balance, SAAR, ‘000 units 300 200 Surplus/Deficit [R] 150 HH formation [L] 250 100 Starts [L] 50 200 0 150 -50 -100 100 -150 -200 50 -250 0 -300 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 11

BUSINESS INVESTMENT • Supply chain risk/travel risk again an issue • Near-shoring/re- shoring… • …vs. co -location, future demand centres • Mechanization driving domestic revival? • Capacity pressures as economy re-emerges 12

INFRASTRUCTURE: FUTURE NEEDS 13

CANADA: INFRASTRUCTURE 14

Oil (West Texas Intermediate) Oil prices tank amid fears from coronavirus and Middle East tensions • COVID-19 worries had already reduced the outlook for global oil Jan 3: US demand in 2020, even before the flood of oil supply onto market assassinates Jan 10: Iran admits Sept 14: Saudi Aramco Iranian General to downing following the collapse of the OPEC+ agreement, which has become 65 Nov/Dec : Oil prices Facilities Attacked Soleimani Ukraine move on news and the biggest factor driving our forecast adjustments. International speculation of US- Airlines Flight 752 China Phase 1 Trade 60 • Beginning in April 2020, more than three million barrels per day of Feb 25: Italy deal confirms extra crude are expected in the market, coming from Saudi Arabia, outbreak cluster 55 Russia, Iraq and the United Arab Emirates. Jan 20: China confirms coronavirus can be • Global demand is expected to increase starting in the second half transmitted human- 50 to-human of 2020 as the COVID-19 impacts recede. However, the significant oversupply in the market is expected to persist until early 2022, Jan 30: 45 WHO declares the resulting in significantly lower global prices for oil. coronavirus outbreak March 7: OPEC+ as a Public Health agreement falls • The oil price forecast averages US$38.84 in 2020 and US$42.89 in Emergency apart and Saudi 40 increases 2021. production and cuts prices 35 30 01-Aug-19 01-Sep-19 01-Oct-19 01-Nov-19 01-Dec-19 01-Jan-20 01-Feb-20 01-Mar-20 West Texas Intermediate (WTI), (USD per barrel) Sources: Energy Information Administration, Haver Analytics, EDC Economics 16

CURRENCIES AND INTEREST RATES Global Economic Outlook 2019 2020* 2021* Currency Exchange Rate U.S. dollar USD per CAD 0.75 0.72 0.75 Euro CAD per EUR 1.49 1.53 1.46 Euro USD per EUR 1.12 1.11 1.09 U.K pound USD per GBP 1.28 1.35 1.31 Interest Rates, annual average Bank of Canada, Overnight Target Rate 1.75 0.85 1.81 U.S. Federal Reserve, Fed Funds Target Rate (Upper limit) 2.14 0.35 1.83 Bank of England, Policy Interest Rate 0.75 0.68 0.54 European Central Bank, Policy Interest Rate 0.00 0.00 0.14 Note: * denotes the forecast period. 17 Source: EDC Global Economic Outlook, March 2020

COMMODITY PRICES Global Economic Outlook 2019 2020* 2021* Brent Crude Spot, USD / bbl 64.08 43.89 47.42 West Texas Intermediate, USD / bbl 56.99 38.84 42.89 Western Canada Select, USD / bbl 43.30 28.97 33.31 Natural Gas, USD / MMBtu 2.57 2.04 3.21 Gold, USD / troy ounce 1,392 1,600 1,320 Note: * denotes the forecast period. Source: EDC Global Economic Outlook, March 2020 18