1

Canadian Economic Outlook:What Lies Ahead?

Glen Hodgson Senior Vice President and Chief Economist The Conference Board of CanadaJanuary 2016

2

What is The Conference Board of Canada?

Objective, independent, unbiased, evidence-based

Canadian

Engages with leaders in all sectors – private sector, governments, academia, civil society.

Show big picture

Findings carry weight with Canada’s leaders, the media, and the general public

The Conference Board of Canada offers a world view of global issues

We have unparalleled reach and influence across Canada, with connections to more than 200,000 businesses, governments, associations, institutions, and individuals

3

• Two perspectives on the economy’s future performance

• Near-term outlook:– based on expenditures by consumers, businesses,

governments, external forces– i.e. demand for goods and services

• Longer term outlook:– assess the principal factors of production – labour, capital,

resources, productivity– i.e. the key supply factors

• The Conference Board of Canada projects both demand and supply

The Economic Outlook: a Primer

4

U.S. Outlook.

• Growth of close to 3 per cent expected over 2016-17

• Better jobs and income are boosting spending on housing, autos and other durables

• Fed rates increasing -- could lead to capital outflows from some emerging markets

• Strong greenback is restraining U.S. exports, earnings of multinationals

• Business investment should ratchet up over next two years

5

03 04 05 06 07 08 09 10 11 12 13 14 15f 16f 17f-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

U.S. real consumer spendingper cent change

Sources: BEA; The Conference Board of Canada.

6

94 95 96 97 98 9920

00 01 02 03 04 05 06 07 08 0920

10 11 12 13 14 15f

30

35

40

45

50

55

60

65

70

75

80

85

90

U.S. Net Debt as a share of GDP per cent

Source: IMF

7

03 04 05 06 07 08 09 10 11 12 13 14 15f 16f 17f-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

U.S. Real GDP Growthper cent change

Sources: Bureau of Economic Analysis The Conference Board of Canada.

8

Weak Canadian Performance:the “New-Normal”

• Real GDP projected to grow 1.8 per cent in 2016

• Resource prices remain depressed

• Weak loonie coupled with strong U.S. consumer should support some export sectors

• Business investment remains lacklustre

• Rock bottom oil prices taking a toll on energy sector

• Job gains are soft -- but aging workforce means labour markets to slowly tighten

9

03 04 05 06 07 08 09 10 11 12 13 14 15e 16f 17f-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Raw Material Price Indexper cent change

Sources: Statistics Canada; The Conference Board of Canada.

10

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16f 17f0

1

2

3

4

5

6

7Canada United States

Short-Term Interest RatesCanadian Bank Rate and U.S. Federal Funds Rate.

Sources: The Conference Board of Canada; Statistics Canada.

11

2002 03 04 05 06 07 08 09

2010 11 12 13 14 15 16

f17

f18

f0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

20

30

40

50

60

70

80

90

100

110

120

Dollar (left) Oil Price (right)

The Loonie and the Oil Price(WTI $US, $US/$C)

Sources: The Conference Board of Canada; U.S. EIA; Statistics Canada.

12

2003 04 05 06 07 08 09

2010 11 12 13 14 15

e 16f

17f

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Export Volumesper cent change

Sources: Statistics Canada; The Conference Board of Canada.

13

03 04 05 06 07 08 09 10 11 12 13 14 15e 16f 17f-20.0

-16.0

-12.0

-8.0

-4.0

0.0

4.0

8.0

12.0

Real Business Investmentnon-residential structures and machinery, per cent change

Sources: Statistics Canada; The Conference Board of Canada.

14

03 04 05 06 07 08 09 10 11 12 13 14 15e 16f 17f-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Employment Growthper cent change

Sources: Statistics Canada; The Conference Board of Canada.

272,000 jobs lost

Roughly 150,000 jobs gained

15

0.60

0.70

0.80

0.90

1.00

1.10

1.20

Retirement Rate as a share of labour force, per cent

Source: Statistics Canada.

16

03 04 05 06 07 08 09 10 11 12 13 14 15e 16f 17f0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Real Consumer Spending.per cent change

Sources: Statistics Canada; The Conference Board of Canada.

17

03 04 05 06 07 08 09 10 11 12 13 14 15e 16f 17f-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Real Government Spending on Goods, Services and Capital, Canadaper cent change

Sources: The Conference Board of Canada; Statistics Canada; various government budgets.

18

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

e20

16f

2017

f120

140

160

180

200

220

240

Housing Starts Household Formation

Canada, Housing Starts vs. Demographic Requirements000s

Sources: Canada Mortgage and Housing Corporation; The Conference Board of Canada.

19

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0

BC

MAN

ONT

NS

QUE

NB

PEI

SASK

ALB

NL

Sources: The Conference Board of Canada; Statistics Canada

Canada: 1.8 %

2016 Real GDP by Province.per cent change, basic prices, $2007.

20

1981-90 1991-00 2001-05 2006-10 2011-20f 2021-30f 2031-35f0.0

0.5

1.0

1.5

2.0

Labour Force Growthaverage annual compound growth, per cent

Sources: Statistics Canada; The Conference Board of Canada.

21

1981-90 1991-00 2001-05 2006-10 2011-20f 2021-30f 2031-35f0.0

0.5

1.0

1.5

2.0

2.5

3.0

Real GDP Canadaaverage annual compound growth, per cent

Sources: Statistics Canada; The Conference Board of Canada.

22

• End of the commodity super-cycle; domestic growth therefore remains soft in 2016

• Big differences among regions -- shift in economic gravity back toward central Canada

• Aging demographics means slower Canadian growth potential

• 2 per cent growth is the “new normal”

• How to raise growth potential? Faster productivity growth

Implications

conferenceboard.ca