ECONOMIC RESEARCH AND STRATEGY Fall 2015 ECONOMIC RESEARCH AND STRATEGY Long-term Economic Outlook for Quebec Régime de rentes du Québec Triennial Seminar Indicators | Trends | Forecasts Sébastien Lavoie | Assistant Chief Economist @vmbleconomie
Quebec: Weak Acceleration of Growth Despite Favourable Cyclical Factors Annual Growth of Real GDP in Quebec Source: Statistics Canada, ISQ, LBS Economic Research and Strategy 2 2
Quebec: Can we Hope for 2% Growth? Breakdown of 20 main industries in Quebec’s economy according to their annual rate of growth in % Declining sectors Sectors showing modest growth (0-2%) Sectors showing strong growth (2%+) Sources: Institut de la Statistique du Québec, LBS Economic Research and Strategy 3 3
The Labour Force is Stagnating in Quebec Labour Force in Quebec (in thousands) 4 4
Start of the “Third Great Wave” • BC: Pax Romana : 25% of global GDP • 1870: Pax Britannica • Globalization and trade: 1870 to 1913 (WWI) • United States and UK: each accounted for 18% of global GDP in 1913 • 1940: WWII; U.S. sole leader with 20% of global GDP • 1950: start of Cold War, tensions • 1960-1990: another wave of international trade • 1990-2008: U.S. dominance, hyper-globalization • 2014 +: digital revolution, moving towards Asian dominance, return of geopolitical tensions 5 5
Significant Potential for Robotics in Quebec’s Labour Force Number of Industrial Robots in Operation per 10,000 Employees in the Manufacturing Sector Around the World China Spain Canada U.S. Germany Japan South Korea Source: International Federation of Robotics, LBS Economic Research and Strategy 6
“Intensive” Growth: Best Allocation of Resources and Capital Number of Industrial Robots in Operation Around the World, in Thousands Source: LBS, WSJ and International Federation of Robotics 7
Various Sectors of the Quebec Economy will be Affected Value of Robot Sales Around the World in Billions of $, in 2013 Industrial Robots Robots Delivering Robots Delivering Professional Personal Services Services Source: International Federation of Robotics, LBS 8
Risk: Close to 1M Jobs Could Ultimately be Automated in the Long Term in Quebec Quebec – Proportion of Occupations at Risk of Automation and Robotization Low Moderate High Source: Statistics Canada, LBS Economic Research and Strategy 9 9
Technological Unemployment: Hindrance to Unemployment Rate and Temporary Downturn in Employment are Possible Unemployment Rate in Quebec 10 10
Quebec Playing Catch-up with ROC in Dealing with the Digital Revolution Portion of Highly Skilled Employment Quebec Canada Ontario Source: ISQ, Statistics Canada, LBS Economic Research and Strategy 11 11
Education: Quebec in a Less Favourable Position to Deal with the Digital Revolution Percentage of Working-Age Population with University Degree Source: Statistics Canada, LBS Economic Research and Strategy 12 12
Can we Expect an Even Wider Gap Between Participation Rates for Men and Women? Percentage of Working-Age Population in Quebec with a University Degree Women Men Source: Statistics Canada, LBS Economic Research and Strategy 13 13
Technological Unemployment: Do Men and Women Adapt at Different Rates? Portion of Employment that is Highly Skilled Quebec Men Women Source: ISQ, Statistics Canada, LBS Economic Research and Strategy 14 14
Currency and Delocalization of Economic Activity Canada: Real Effective Rate of Change Spot 10-Year Mov. Av. Standardized to 100; Source: BIS, LBS Economic Research and Strategy 15 15
Relocation and Automation: Impediments to Job Creation in the Manufacturing Sector Quebec – GDP and Employment in the Manufacturing Sector Real GDP Employment Source: ISQ, LBS Economic Research and Strategy 16 16
Robotization: Contributing Towards the Greater Increase in Capital Expenses; Productivity Gains Portion of Fixed Capital Investment in Quebec’s GDP Investments in Machinery and Equipment Source: ISQ, LBS Economic Research 17 17
The Shock of the Major Civilizations • BC: Pax Romana : 25% of global GDP • 1870: Pax Britannica • Globalization and trade: 1870 to 1913 (WWI) • United States and UK: each accounted for 18% of global GDP in 1913 • 1940: WWII; U.S. sole leader with 20% of global GDP • 1950: start of Cold War, tensions • 1960-1990: another wave of international trade • 1990-2008: U.S. dominance, hyper-globalization • 2014 +: digital revolution, moving towards Asian dominance, return of geopolitical tensions 18 18
Global Production in 1960 Source: www.worldmapper.org 19 19
Global Production in 2014 Source: www.worldmapper.org Source: www.worldmapper.org 20 20
The Contribution of Asian Economies will Continue; a Multipolar World? Economic Centre of Gravity Source: United Nations, IMF, Credit Suisse 21
Today’s Global Economy India Other non-OECD Countries China Other OECD Countries U.S. Euro Zone Japan Source: OECD, LBS Economic Research and Strategy 22 22
The Global Economy in 2060 India and China Bigger than OECD Countries “Pax China/India”? Other non-OECD Countries India Other OECD Countries Euro Zone China Japan U.S. Source: OECD, LBS Economic Research and Strategy 23 23
The Percentage of the GDP Accounted for by Exports has Reached a Point of Maturity Portion of International Trade in Quebec’s GDP Exports of Goods and Services Imports of Goods and Services Source: ISQ, LBS Economic Research 24 24
Signs of a World Less Centred on Globalization • Global economic growth is lower • Global supply chains in China less significant • Under-performance of major multinational corporations in relation to small-cap securities • Protectionism: Close to 1000 trade-restricting measures adopted by G20 countries since 2008 • Tensions around foreign currencies • Immigration challenges • Gaps: income inequality and standard of living • Increased geopolitical conflict and tensions 25 25
Global Production in 2012 US$85 Billion 26 26
Global Production in 2050 US$450 Billion+ Source: CED-Q estimates 27
“Intensive” Growth of Industrialized Countries “Extensive” Growth of Emerging Economies China: Urbanization Rate Source: CEIC, RBA, UN, LBS Economic Research and Strategy 28 28
Quebec Cannot Rely on Globalization as Much as it Did in the Past Bilateral Investment Treaties Signed by Various Advanced Economies Norway Japan Australia Canada U.S. Spain Italy Netherlands U.K. France Switzerland Germany Signed with Advanced Economies Signed with Emerging Economies Source: UNCTAD, Credit Suisse, LBS Economic Research and Strategy 29 29
Quebec: The Portion of the GDP Accounted for by Exports has Reached a Point of Maturity (Excluding Currency) Quebec: Exports as % of the Real GDP (in real terms) 30 30
More “Multipolar” World: Quebec’s Growth will be Tied more to Ontario and the U.S. • Long-term projections of major trading partners favourable to Quebec exports: • HSBC by 2050 (2011): U.S.: 1.8%, Canada: 2.4% • Gvt of Ontario by 2030 (2010): Ontario: 2.6% • PwC by 2050 (2014): U.S.: 2.4%, Canada: 2.1% • OECD by 2060 (2012): U.S.: 2.1%, Canada: 2.2% • Blue Chip Consensus by 2025: U.S.: 2.3% • CBO by 2025: U.S.: 2.2% 31 31
Renewable Energy will Account for Nearly 50% of New Global Energy Capacity Energy Production Capacity 2013-2040 (Gigawatts) Withdrawals Additions Source: NBER, LBS Economic Research and Strategy Source: OECD, IEA, 2014 32
Leaving Favourable External Conditions Aside, What About Domestic Conditions? Leveraging Household Debt 33 33
Quebec Households: Less Debt, but Fewer Assets Debt to Gross Income (DGI) and % of Owner-Occupied Households with Mortgages DGI (%) B.C. Owner-Occupied Households with Mortgages (%) Source: Bank of Canada / Ipsos Reid, Statistics Canada, LBS Economic Research and Strategy 34 34
Quebec Households: Less Debt, but Fewer Assets Average Net Worth of Households in 2014 (Assets Minus Debts, in Thousands $) 35 35
Formation of Households and Housing Construction: an Inevitable Trajectory Formation of Households* and Housing Starts in Quebec (Annual Average in Thousands, Based on a 5-year Period) Household Formation Housing Starts Source: Statistics Canada; *2011-2061 Forecasts from ISQ, CMHC **2011-16 Forecasts from LBS Economic Research and Strategy 36 36
Limits to Household and Government Debt Quebec Government: Net Debt ($ million) 37 37
Monetary Policy: 2% Inflation Target? Catch me if you can Inflation Projections by the Bank of Canada Return to 2% Inflation April 2010 MPR Late 2011 April 2011 MPR Mid-2012 April 2012 MPR Mid-2013 April 2013 MPR Mid-2015 April 2014 MPR Early 2016 October 2014 MPR Late 2016 January 2015 MPR Late 2016 July 2015 MPR Early 2017 Source: Bank of Canada, LBS Economic Research and Strategy 38 38
A New Inflation Environment: “ Lowflation ”? Inflation in Canada (as Measured by the CPI) 39 39
Macroeconomic Objectives are Not Always Compatible with the Financial Stability Objectives of the Central Banks Duration of Expansions in the U.S. (Since 1854) Median Average Nov. 82 March 91 Nov. 01 June 09 Source: NBER, LBS Economic Research and Strategy 40 40
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