Hoping for the Best: BCs Economic Outlook Presented to: EDABC - PowerPoint PPT Presentation

Hoping for the Best: BC’s Economic Outlook Presented to: EDABC Richmond, BC May 15, 2012 Ken Peacock Chief Economist Business Council of BC

2 Two-Track Global Economy Real GDP Growth, % 9 6 3 0 World -3 Advanced economies Emerging economies -6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: IMF.

3 Emerging Markets Driving the World Economy Change in level of real GDP, 2007 to Q3 2011 40 35.0 35 28.0 30 25 20 15 10 4.2 3.7 5 0 -0.4 -5 -3.3 -10 Emerging Emerging Asia Canada US Euro area Japan markets Source: IMF.

4 Global Growth Set to Slow (Real GDP % Change) 2002-2007 2011 2012 2013 2014 average United States 2.6 1.7 2.3 2.5 3.6 Euro area 2.0 1.5 -0.6 0.8 1.4 Japan 1.6 -0.7 1.9 1.6 1.6 China 11.2 9.2 8.1 8.0 8.0 Rest of the world 5.1 4.3 3.4 3.5 3.7 World 4.4 3.8 3.2 3.4 3.8 Canada 2.7 2.5 2.4 2.4 2.2 Source: Bank of Canada, Monetary Policy Report, April 24. 2012.

5 Canada’s Growth Still Aligned with US Real GDP Growth, % 6 4 2 0 -2 Canada US -4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: IMF for history, TD Economics for 2012 & 2013 forecasts.

6 US Home Prices Stabilizing? US Home Price Indices, Jan. 2000=100 250 S&P Case Shiller 10 City Composite 230 210 CoreLogic National 190 CoreLogic National excl Distressed sales 170 150 130 110 90 70 50 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: Standard & Poor's and CoreLogic. Latest: February for S&P and March for CoreLogic

7 US Housing Starts Gradually Rising US Housing Starts, seasonally adjusted annual rate, 000s 2550 2050 1550 1050 550 50 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: US Census Bureau. Latest: March

8 When They Move Out…Starts Will Climb

9 Loonie Shapes the Competitive Landscape Canada - US Exchange Rate, monthly with quarterly forecasts, US cents/Cdn$ 110 noon rate 105 BMO Capital Markets 100 TD Economics 95 90 85 80 75 70 forecast 65 60 02 03 04 05 06 07 08 09 10 11 12 13 Source: Bank of Canada, BMO Capital Markets for forecasts (May 2012). Latest actual: April 2012

10 Canada: Interest Rates at Rock Bottom Levels Interest Rates, % 7 3 month T-bill 6 10 yr Bond Yields 5 4 3 2 1 0 02 03 04 05 06 07 08 09 10 11 12 Latest: April 2011 Source: Bank of Canada.

11 BC Economy: Key Themes Export sector has rebounded since 2009 – growing influence of Asia Domestic activity were soft in 2011, hindered by muted job growth, high household debt and HST-related issues Construction (non-residential) is expected to provide an economic lift going forward Northern BC on the rise Skill/talent shortages re-emerging as a key business concern

12 Modest Employment Gains BC Employment, thousands 2350 2300 2250 2200 2150 2100 Employment S.A. Trend 2050 2000 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Statistics Canada. S.A. – seasonally adjusted Latest: April 2012

13 Job Growth Concentrated in Metro Vancouver Employment Metro Van and Rest of BC, Indexed Jan 2006=100 115 110 105 100 Metro Van Rest of BC 95 2006 2007 2008 2009 2010 2011 2012 Source: Statistics Canada, seasonally adjusted data. Latest: March 2012

Unemployment Lower in the West Provincial Unemployment Rates, % 9 8 7 6 5 4 3 2 1 2009 2010 2011 2012 ytd 0 BC Alta Sask Man Ont Que Source: Statistics Canada.

15 Growth in Consumer Spending Picking Up BC Retail Sales Growth quarterly, y/y % change 10 8 6 4 2 0 -2 -4 -6 -8 -10 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: Statistics Canada. Latest: Q1 2012, estimate based on Jan & Feb.

16 Housing Sales Level Off in BC BC Housing Sales (MLS), seasonally adjusted, units 10000 9000 8000 7000 6000 5000 4000 3000 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: CREA. Latest: March 2012

17 House Prices Moderating? Avg. House Price BC, $ thousands 650 600 550 500 450 400 350 300 250 200 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: CREA. Latest: March 2012

18 Residential Construction Flat BC Housing Starts seasonally adjusted, units 4500 4000 3500 3000 2500 2000 1500 1000 500 0 03 04 05 06 07 08 09 10 11 12 Source: CMHC, urban areas (population 10,000+). Latest: February 2012

19 Capital Spending to Exceed $50 billion BC Capital Investment, billions $ 55 50 45 40 35 30 25 20 15 10 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: Statistics Canada, Public and Private Investment Intentions.

20 …thanks to More Investment in Resource Industries Change in BC Capital Investment, billions $ 8 6 4 2 0 -2 All other sectors -4 Housing -6 Mining, Oil & Gas & Mfg. -8 -10 05 06 07 08 09 10 11 12 Source: Statistics Canada, Public and Private Investment Intentions.

21 China and Other Markets Have Driven BC Exports BC International Merchandise Exports, S.A. millions $ 2,100 US 1,900 Rest of World 1,700 1,500 1,300 1,100 900 700 06 07 08 09 10 11 12 Source: BC Stats. Latest: March 2012

22 BC Exports to Pacific Rim Now Equal to US BC Exports, millions $ 25,000 US 20,000 15,000 10,000 Pacific Rim 5,000 0 00 01 02 03 04 05 06 07 08 09 10 11 Source: BC Stats.

23 Asia Eclipsing Languishing US Market BC Lumber Exports, millions $ 6,000 China 5,000 US 4,000 Japan 3,000 2,000 1,000 0 02 03 04 05 06 07 08 09 10 11 Source: BC Stats.

24 China is BC’s Largest Pulp Market BC Pulp Exports, millions $ 1,800 1,600 China 1,400 US 1,200 Japan 1,000 800 600 400 200 0 02 03 04 05 06 07 08 09 10 11 Source: BC Stats.

25 Slower Growth in 2012 BC Economic Forecast, % change unless noted Forecast 2010 2011 2012f 2013f Real GDP 3.0 2.9 2.2 2.6 Employment 1.7 0.8 1.6 1.6 Retail sales 5.4 3.1 4.0 4.5 Housing starts (units) 26,500 25,500 25,000 25,000 Source: Business Council, Statistics Canada for history.

26 A Decent Overall Economic Performance for BC Real GDP Growth 2005-2011, annual average % Alta Man BC Sask Nfld Can PEI Que NB Ont NS 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Source: Statistics Canada.

BC’s Economic Position in Canada: Three Metrics Labour Productivity: Real GDP per person, Real Disposable Income real output per hour 2010 per person, 2010 worked, business sector, 2010 BC $36,899 BC $26,166 BC $34.15 (5 th among (4 th among (6 th among provinces) provinces) provinces) Alberta $49,249 Alberta $33,438 Alberta $46.96 Ontario $39,902 Ontario $27,004 Nfld $45.00 Sask $39,769 Sask $26,193 Sask $42.77 Nfld $37,214 Canada $26,571 Ontario $38.20 Canada $38,826 Quebec $36.52 Canada $38.22

28 Economic Upswing in “Northern BC” Mining (coal, metals) – BC Jobs Plan targets 8 new mines by 2020 Construction – many significant projects Wood products (but from a low base) Transportation/logistics – PG and Prince Rupert Gateway development and expansion Energy (Northwest Transmission Line, IPPs, LNG terminal in Kitimat, other shale gas and LNG plays, pipeline development, bio- energy opportunities, Site C) Rio Tinto Alcan smelter modernization But…regional skill shortages expected (already emerging)

29 Decline in Core Working Age Population in Many Areas Per Cent Change, Population 25-49 40 1990-2000 30 20 2000-2010 10 0 -10 -20 -30 -40 Vancouver Island Mainland / Southwest Thompson-Okanagan Kootenay Cariboo North Coast Nechako Northeast Source: BC Stats.

65+ Will Account for 23% of the Population (compared to 15% Today) BC Population* by Age Cohorts, thousands 1,600 1,400 1,200 2011 2021 2031 1,000 800 600 400 200 0 15-24 25-34 35-44 45-54 55-64 65+ Source: Statistics Canada. * medium growth M1 scenario

31 Net Interprovincial Migration Turns Negative BC Net Migration, quarterly seasonally adjusted, persons 20000 15000 10000 5000 0 Interprovincial -5000 International -10000 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: BC Stats, BCBC for seasonal adjustment. Latest: Q4 2011

32 Almost as Many Immigrants Settle in Alberta as BC Immigration, thousands 60 Man Sask Alta BC 50 40 30 20 10 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: Statistics Canada.

33 Alberta Attracting People Net Interprovincial Migration, thousands 50 40 30 20 10 0 -10 -20 Alta BC -30 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: Statistics Canada

34 Marginal Effective Tax Rates on Business Investment BC The Marginal Effective 26.4% Pre-HST Tax Rate (METR) is a comprehensive measure of BC with HST 15.7% the impact of business taxes on investments. It captures all Ontario 16.2% taxes which impact the net with HST return on capital employed – Alberta 16.3% e.g., corporate income tax, capital taxes, sales taxes, and Quebec 14.8% capital cost allowances. The METR excludes R&D tax US 34.3% credits and property taxes. OECD avg 22%