New World Realities Warren Jestin SVP & Chief Economist - PowerPoint PPT Presentation

New World Realities Warren Jestin SVP & Chief Economist Presentation to: Edmonton Real Estate Forum Edmonton, May 3, 2011

The Global Economy Is Reviving… Real GDP annual % change 2004-07 12 2010e 2011f 10 2012f 8 6 4 2 0 China India Brazil Mexico Japan U.S. Canada Euro zone Source: Scotia Economics, Bloomberg, BEA, Statistics Canada, Eurostat.

… But the Recovery is Uneven Across Regions and Sectors… Employment Growth Construction & Resources Lead in Alberta 6 y/y % change 150 employment, Index: 2004Q1=100 Natural 140 Alberta Resources 4 130 Canada 2 Construction 120 Services 0 110 100 -2 90 U.S. Manufacturing -4 80 -6 70 04 05 06 07 08 09 10 11 04 05 06 07 08 09 10 11 Source: Statistics Canada, BEA, Scotia Economics, Eurostat.

… U.S. Financial Strains Remain Intense… U.S. Foreclosures Near Record Highs Federal Spending Far Exceeds Revenues 16 3.6 US$ trillions % of total loans 14 3.2 Total Expenditures 12 10 2.8 Subprime Foreclosures 8 2.4 6 Total 4 Revenue 2.0 Prime Foreclosures 2 0 1.6 04 05 06 07 08 09 10 FY04 05 06 07 08 09 10 Source: U.S. Treasury. Source: Bloomberg.

… & Fiscal Repair Will Temper Growth Beyond Mid-Decade Fiscal Deficits Net Debt 14 140 General Gov’t, 2010 , % of GDP General Gov’t, 2010 , % of GDP 12 120 10 100 8 80 6 60 4 40 2 20 0 0 U.S. U.K. Japan Canada Germany Emerging Japan U.K. U.S. GermanyCanada Emerging Economies Economies Source: IMF, Scotia Economics.

Emerging Markets are Driving Global Growth Commodities Prices Motor Vehicle Sales* 400 prices, millions of units forecast index:2004Q1=100 20 EU & WTI Oil Japan 350 16 300 Gold North America 250 12 200 8 150 Brazil, Russia, Wheat India & China 4 100 NYMEX Natural Gas 50 0 04 05 06 07 08 09 10 11 04 05 06 07 08 09 10 11f *Includes light trucks in North America. Source: Scotia Economics, Bloomberg. Source: Scotia Economics, Ward’s Automotive Reports.

Inflation Risks Are Rising Canada’s Inflation Dichotomy Canada’s Consumer Price Index 175 4 index: January 2004=100, y/y % change 12 month moving average 150 3 Gasoline 125 Food Core* 2 100 Total Motor Vehicles 75 1 Headline 50 0 Personal 25 Computers 0 -1 04 05 06 07 08 09 10 11 04 05 06 07 08 09 10 11 *CPI ex-8 most volatile components & impact of indirect tax changes. Source: Scotia Economics, Statistics Canada.

Low Interest Rates Support Retail Sales and Home Prices Canada’s Consumer Spending Surge Central Bank Rates 175 6 % index: Jan 2004=100 3-month moving average U.S. 5 forecast MLS House 150 4 Prices 3 Canada 125 2 Retail Sales 1 Full-time Employment 100 0 04 05 06 07 08 09 10 11 04 05 06 07 08 09 10 11 12 Source: Canadian Real Estate Association, Statistics Canada. Source: Bank of Canada, U.S. Federal Reserve, Scotia Economics.

Stronger Job Creation & Confidence Underpin Housing Market Consumer Confidence Housing Starts 150 150 forecast index: 2004 Q1 = 100 index: 2004=100 125 125 U.S. Alberta 100 100 Canada Canada 75 75 50 50 U.S. 25 25 04 05 06 07 08 09 10 11 04 05 06 07 08 09 10 11 12 Source: The Conference Board, Scotia Economics. Source: Global Insight, Scotia Economics.

Despite Rising Debt, Canadian Finances Are in Better Shape The Gap has Closed on Debt to Income… … But We Use Less Debt to Buy Assets 170 32 household* credit liabilities o/s as % of PDY household* debt o/s as % of assets 160 30 U.S. 150 28 U.S. 140 26 24 130 120 22 Canada 110 20 Canada 18 100 90 16 80 14 94 96 98 00 02 04 06 08 10 94 96 98 00 02 04 06 08 10 * Includes households and unincorporated business. Source: U.S. Federal Reserve, Statistics Canada, Scotia Economics.

Non-res Construction Also More Resilient in Canada… Non-Residential Construction Office Vacancy Rates 140 16 % index: 2004=100 forecast U.S. 12 Canada 120 Calgary Canada 8 100 4 U.S. Edmonton 80 0 04 05 06 07 08 09 10 11 12 04 05 06 07 08 09 10 11 Source: Statistics Canada, CBRE, Cushman & Wakefield Scotia Economics.

… & Loonie Strength, U.S. Weakness Hit Our Exports The Loonie Continues to Fly High… …Despite Weaker Trade Balances 25 125 1.10 WTI Oil US$/bbl CADUSD C$ billions, 4-quarter moving average 1.05 20 Parity 100 1.00 15 $100/bbl 0.95 Commodities 10 75 0.90 5 0.85 0 WTI Oil 50 0.80 (LHS) Tourism Balance -5 0.75 Canadian Dollar forecast -10 Merchandise Trade ex. 25 0.70 (RHS) Commodities -15 0.65 0 0.60 -20 04 05 06 07 08 09 10 11 12 04 05 06 07 08 09 10 Source: Scotia Economics, Statistics Canada, Bloomberg.

Growth & Income Prospects Best in Resource Regions Nominal GDP Per Capita Nominal GDP Per Capita 180 180 index: 2004=100 index: 2004=100 forecast forecast 170 170 Newfoundland and Labrador Saskatchewan 160 160 150 150 140 140 Manitoba 130 130 New Alberta Brunswick 120 120 B.C. Quebec 110 110 Nova Scotia Ontario P.E.I. 100 100 04 05 06 07 08 09 10f 11f 12f 04 05 06 07 08 09 10f 11f 12f Source: Statistics Canada, Scotia Economics.

Disclaimer This report has been prepared by Scotia Economics as a resource for the clients of Scotiabank and Scotia Capital. 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 Group nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.