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Recent Developments in the Canadian EconomyJune 2012
Bank of Canada
Dr. Farid Novin
The Views of Farid Novin presented today may not represent the views of the Bank of Canada
2
Outline
World Economy
The United States
Canada and BC
3
The World Economy
4
Chinese growth is decelerating towards a more sustainable level
5Source: IMF
Real GDP Y/Y % change
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
2
4
6
8
10
12
14
16
China India
6
The recovery among major economies continues to be uneven
Real GDP Y/Y % change
Source: IMF, Stats Canada
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-10
-8
-6
-4
-2
0
2
4
6
UK USA Japan Germany Canada
7
Striking divergences are apparent between the unemployment rates of core and peripheral economies in the euro area
2007 2008 2009 2010 2011 20120
5
10
15
20
25
Germany Spain Portugal Greece France Italy
%
Chart 8:Unemployment rates, monthly data
Last observation: January and February 2012Source: Eurostat
8
Central banks in advanced economies have maintained policy interest rates at historically low levels
2008 2009 2010 2011 20120.00.51.01.52.02.53.03.54.04.5
Canada United States Euro area Japan
%Chart 1:Policy interest rates, daily data
Last observation: 13 April 2012
Note: On 5 October 2010, the Bank of Japan changed the target for its policy rate from 0.1 per cent to a range of 0.0 to 0.1 per cent. The U.S. Federal Reserve has been maintaining a target range for its policy rate of 0.0 to 0.25 per cent since 16 December 2008.Sources: Bank of Canada, U.S. Federal Reserve, European Central Bank and Bank of Japan
9
Some central banks have expanded their balance sheets further
United States Euro area* United Kingdom0
2
4
6
8
10
12
14
16
2011Q2-2011Q4 2007Q2-2011Q2
Percentage points
Chart 3:Change in total central bank assets relative to GDP
Last observation: 2011Q4
* The bar for the euro area represents balance sheet changes of the European Central Bank andnational central banks of those European member states whose currency is the euro. Sources: Eurostat; European Central Bank; U.S. Bureau of Economic Analysis; U.S. Federal Reserve;U.K. Office for National Statistics; Bank of England; Cabinet Office, Government of Japan; and Bank of Japan
1010
Large deficits remain a problem for many countries...
Deficit as a % of GDP, all levels of government
Source: IMF
Canad
a
Greece
Italy
Spain
German
y
Japa
n
-35
-30
-25
-20
-15
-10
-5
0
2010 2011 2012
US economy
11
12
US GDP and Final Domestic Demand
(volume, y/y % change)
Source: US Bureau of Economic Analysis
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-6
-4
-2
0
2
4
6
8
GDP FDD
13
U.S. real GDP growth is projected to remain relatively modest compared with previous U.S. recoveries
-2 -1 0 1 2 3 4 5 6 790
100
110
120
130
140
Min U.S. current cycle Dateline Series7
IndexChart 9:U.S. real GDP across economic cycles; start of recession = 100, quarterly data
Note: The Big Five modern financial crises, as described in Reinhart and Rogoff (2008) , are Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992).See C.M. Reinhart and K.S. Rogoff, "Is the 2007 U.S. Sub-Prime Financial Crisis So Different?An International Historical Comparison." American Economic Review: Papers and Proceedings 98, No.2 (2008): 339-44.Sources: U.S. Bureau of Economic Analysis, Organisation for Economic Co-operation and Development and Bank of Canada projections
Start of the recession
Years after the start of the re-cession
Years be-fore thestart of the recession
14
Fiscal consolidation is expected to exert a significant drag on U.S. real GDP growth
2011 2012 2013 2014-3-2-1012345
GDP growth excluding fiscal policy Estimated contribution from fiscal policySeries4
%Chart 10:Annual data
Note: The contribution of fiscal policy to growth includes both direct government expenditures and the indirect effects on other components of aggregate demand. The estimated contribution over history has been re-assessed in light of additional information on U.S. government spending.Sources: U.S. Bureau of Economic Analysis and Bank of Canada calculations and projections
Canada and B.C.
15
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-6
-4
-2
0
2
4
6
GDP FDD
Canadian GDP and Final Domestic Demand
16Source: Statistics Canada
(volume, y/y % change)
17
Real GDP is expected to grow at a moderate pace
2008 2009 2010 2011 2012 2013 2014-10-8-6-4-202468
Quarter-over-quarter percentage change in real GDP, at annual ratesBase-case projectionBase-case projection
%Chart 24:
Sources: Statistics Canada and Bank of Canada calculations and projections
18
2006 2007 2008 2009 2010 2011 201294
96
98
100
102
104
106
108
110
B.C. Canada
Employment is now above pre-recession levels in B.C.
Source: Statistics Canada
Index 2006Q1=100
BC employment level before the recession
Commodity prices
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Source: Bank of Canada
Index 2006=100
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
100
200
300
400
500
600
Oil Copper Lumber Nat. Gas
Private and Public Sector Investment
Source: Stats Canada
* Intentions
(y/y % change)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
* -20%-15%-10%-5%0%5%10%15%20%25%
BC Canada
Mineral exploration spending in BC has reached an all-time high
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$ Millions
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
100
200
300
400
500
600
700
800
900
BC’s forestry industry has been severely affected by the US housing recession
Source: BC Stats
Exports ($millions)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
2,000
4,000
6,000
8,000
10,000
12,000
Wood products Pulp & paper products
However, efforts to grow Chinese demand for BC’s softwood lumber have been very successful
Share of BC softwood lumber exports by value (%)
Growth in value of softwood lumber exports to China (y/y% change)
Source: BC Stats23
2006
2007
2008
2009
2010
2011
2012
YTD
-20%
0%
20%
40%
60%
80%
100%
120%
20%
51%
80% 78%
112%
62%
-3%
01020304050607080
United States JapanChina
24
Excess supply remains in the Canadian economy
2007 2008 2009 2010 2011 20120
10203040506070
-4-3-2-10123
Some and significant difficulty* (left scale) Labour shortages** (left scale)
Conventional measure of the output gap** (right scale)
% %Chart 22:
Last observation: 2012Q1
*Response to Business Outlook Survey question on capacity pressures. Percentage of firms indicating that they would have either some or significant difficulty meeting an unanticipated increase in demand/sales.**Response to Business Outlook Survey question on labour shortages. Percentage of firms reporting labour shortages that restrict their ability to meet demand.***Difference between actual output and estimated potential output from the Bank of Canada's conventional measure. The estimate for the first quarter of 2012 (indicated by *) is based on a projected increase in output of 2.5 per cent (at annual rates) for the quarter.Source: Bank of Canada
25
Table 1: Projection for global economic growth
26
Table 2: Contributions to average annual real GDP growthPercentage pointsa
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Table 3: Summary of the base-case projection for Canadaa