September 2019Andrew Grantham, Executive Director & Senior Economist
Wrong-Footed
He Said, Xi Said 1
“We cannot continue to allow China to rape our
country, and that’s what they’re doing.”
“China has total respect for Donald Trump and for
Donald Trump’s very, very large brain.”
“There are some bored foreigners, with full
stomachs, who have nothing better to do than point
fingers at us.”
Slowing Global Trade (L)
Exposes Open Economies to Greatest Deceleration (R)2
-4
-2
0
2
4
6
8
2017 Q
1
2017 Q
3
2018 Q
1
2018 Q
3
2019 Q
1
Global Trade Volume
(% SAAR)
0
10
20
30
40
50
-2 -1 0 1
GDP Acceleration/Deceleration vs 2017 (%-pts)
Exports as
% GDP
US
Jpn
GerS.Kor
Ita
Aus
Cda
Source: CRB, National Statistics Agencies, CIBC
New Tariffs Will Slow China More Than Desired (L)
Beijing Can’t Keep Up Pace of Fiscal Rescue (R)3
-8
-7
-6
-5
-4
-3
-2
-1
0
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019F
China Advanced Countries
General Government Cyclically Adjusted Balance
(% GDP)
Source: National Statistics Agencies, Bloomberg, CIBC
4.5
5.0
5.5
6.0
6.5
7.0
Curr
ent
Rate
(Q
2)
Min
us
Impact
of
new
and h
igher
tarr
iffs
China GDP (% Yr/Yr)
Target Range
Interest Rate Cuts Haven’t Worked (L)
Eurozone Needs Germany to Take the Brake Off Debt (R)4
6
7
8
9
10
11
12
-1
0
1
2
3
4
5
Mar-
03
Nov-0
5
Jul-
08
Mar-
11
Nov-1
3
Jul-
16
Mar-
19
German 10YYield (L)German HHSavings Rate (R)
% %
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
2018 2019 2020 2021
CIBC base case - Debt Limitdeficit in 2020, higher in 2021+Germany Allows Debt-BrakeLimit Deficit by 2021Current Policy
EZ Fiscal Stimulus/Drag (%-GDP)
Source: Eurostat, European Commission, IMF, CIBC
US Yield Curve: the Grim Reaper? 5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1985 1990 1995 2000 2005 2010 2015
Diff, 2 Year-3 Month Gov. Bond Yield (%-Pts)
Only Five of 16 Indictors in Negative Territory 6
Source: BEA, BLS, Census, Markit, Bloomberg, CIBC
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Exis
ting h
om
e s
ale
s
Housi
ng S
tart
s
Auto
Sale
s
Consu
mer
Conf.
Core
Dura
ble
Ord
ers
New
hom
e S
ale
s
Const
r Spendin
g
Export
s
HH
Incom
e
Init
ial Cla
ims
Core
Reta
il S
ale
s
Manf.
Pro
ducti
on
Unem
plo
ym
ent
ISM
Payro
lls
Hours
Correlation Between Negative Trends and Recession
Months by IndicatorCurrently Negative
Government Spending Caps - Raised 7
Source: CBO, CIBC
19.5
20.0
20.5
21.0
21.5
2019F 2020F 2021F
Prior With Raised Spending Caps
US Gov. Outlays (% of GDP)
Bond Yields Rise As Mid-Cycle Ease is Concluded
Well Before Fed Tightens 8
Source: Federal Reserve, CIBC
-1.0
-0.5
0.0
0.5
1.0
1.5
Aug-98 Dec-98 Apr-99 Aug-99 Dec-99
Interest Rates Changes During A Mid-Cycle Ease (%)
US 10yr Fed Funds
2020 Marks a Mid-Cycle Growth Nadir
But 2021 Is Still Below 2014-18 Trend9
Avg 2014-18 2017A 2018A 2019F 2020F 2021F
World* 3.6 3.8 3.6 3.1 2.9 3.3
US 2.5 2.4 2.9 2.2 1.7 2.1
Canada 1.9 3.0 1.9 1.6 1.4 1.9
Euroland 1.9 2.4 1.9 1.0 0.6 1.2
UK 2.1 1.8 1.4 1.0 0.4 1.4
Japan 1.0 1.9 0.8 1.2 0.9 1.1
China 6.9 6.8 6.6 6.2 5.8 5.9
* at Purchasing Power Parity
BoC: Playing Up Trade Impact on Canada 10
“Business investment contracted
sharply after a strong first quarter,
amid heightened trade uncertainty”
“escalating trade conflicts and related
uncertainty are taking a toll on the
global and Canadian economies”
But…Domestic Spending a Bigger Contributor to Slowdown Here 11
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
Domestic Consumption
Other (net trade, investment, inventories)
Contribution to GDP Growth Change Since 2017
(%-pts)
Source: National Statistics Agencies, CIBC
Canada-China Trade Tensions Mainly a Provincial Story 12
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
Sask Man N&L Alb NB Ont BC Que PEI NS
Change in China Exports as % GDP
(Jan-Jul 2019 vs 2018)
Source: Statistics Canada, CIBC
Canada’s Q2 Growth is a Head Fake 13
-0.20.00.20.40.60.81.01.21.4
Min
ing,
Oil &
Gas
Real Est
ate
Whole
sale
Public A
dm
in
Tra
nsp
ort
Healt
h
Agri
c.
Educati
on
Pro
f, S
ci &
Tech
Fin
ance Insu
rance
Accom
m.
Const
.
Oth
er
Info
& C
ult
ura
l
Reta
il
Art
s, E
nt
& R
ec.
Manf.
Adm
in &
Wast
e
Uti
liti
es
Estimated Q2 Contribution to Growth By Industry (%pts)
Alberta Eases
Mandated Cuts
Source: Statistics Canada, CIBC
Household Savings Historically Low (L)
Particularly in Ontario (R)14
0
3
6
9
12
15
18
21
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
Household Savings Rate (%, 4 Qtr. MA)
Lowest Since 1961
Source: Statistics Canada, Ontario Finance, CIBC
0
1
2
3
4
5
6
7
8
9
2003 -
Q1
2004 -
Q4
2006 -
Q3
2008 -
Q2
2010 -
Q1
2011 -
Q4
2013 -
Q3
2015 -
Q2
2017 -
Q1
2018 -
Q4
Quebec
Ontario
Household Savings Rate (%)
Harsh, But Not Unprecedented, Restraint in Ontario (L)
There Has Been Wiggle Room in the Past (R) 15
-1.2
-0.8
-0.4
0.0
0.4
0.8
2012/13 -
2016/17
(Budget
2013 P
roj.
)
Actu
al (2
012/13 -
2016/17)
Budget
2019 (
2019/20-
2023/24 p
roj.
)
Avg % Yr/Yr Program Spending
-6
-4
-2
0
2
4
6
8
10
12
14
1995 1999 2003 2007 2011 2015 2019 2023
Real Program Spending
5Y Average
% Yr/Yr
Forecast
Source: Ontario Finance, CIBC
Exports and Capital Spending Have Been Serial Disappointments 16
Source: Bank of Canada, CIBC
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
Cons. Housing Gov't Bus. Fixed Inv. Exports
2012 2013 2014 2015 2016 2017 2018 2019
Difference Between Bank of Canada's Initial and Final
Estimate of GDP Contribution (%)
Capacity Additions Have Run Ahead of Needs (L)
Pointing to Disappointments in Future Capital Spending (R)17
80
85
90
95
100
105
110
Manufacturing Indexes (2000 = 100)
Production Capacity
0.0
0.1
0.2
0.3
0.4
2020F 2021F
BoC CIBC
Bus. Fixed Inv. Contribution to Real
GDP Growth (%pts)
Source: Statistics Canada, CIBC
Canadian Exports Have Fallen Short
vs. Foreign Demand Measure18
0
1
2
3
4
5
Total Non-Energy Non- Commodity BoC Non-Commodity
Foreign DemandMeasure*
Real Export Growth Since Beginning of 2017
(%, SAAR)
Source: Bank of Canada, CIBC
Canadian Housing Data Starting to Recover 19
-25
-20
-15
-10
-5
0
5
10
15
Unit Home Sales Housing Starts Dwellings UnderConstruction
Year-Over-Year Change (%)
End-2018 Latest
Source: Statistics Canada, CMHC, CIBC
Overbuilding? Not so Obvious in Ontario 20
4000
5000
6000
7000
8000
9000
10000
11000Jan-1
0
Mar-
11
May-1
2
Jul-
13
Sep-1
4
Nov-1
5
Jan-1
7
Mar-
18
May-1
9
Newly Completed and
Unabsorbed Units
Approx. 2000
Increase
-200
0
200
400
600
800
1000 Change vs 2015-17 Average
Source: CMHC, CIBC
Canadian Inflation Closer to Target Today… 21
0.0
0.5
1.0
1.5
2.0
2.5
EZ US (corePCE)
AUS(trimmed
CPI)
UK Cda (3 coreavg)
1Y ago Latest
Core Inflation % Y/Y (CPI ex-food/energy unless stated)
Source: National Stat. Agencies, Bloomberg, FRED, CIBC
…and over the Past Decade 22
-2.0
-1.6
-1.2
-0.8
-0.4
0.0
0.4
UK (CPI) Canada (CPI) US (PCE) Eurozone(HICP)
Japan (CPI)
Actual Price Level Relative to Central Bank Target Since 2010 (CAGR, %)
Source: National Stat. Agencies, Bloomberg, FRED, CIBC
Key Takeaway 23
For inquiries regarding financing, cash management,
investment or other banking services for municipalities,
please contact:
Steve Kuwahara, Market Vice-President and Head of
CIBC’s Public Sector and Not-for-Profit Group, email
[email protected], tel 416-980-6320
Key Takeaway (2) 24
For Canada, slower growth is mainly
domestically, not globally-driven
25
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