CANADIAN OUTLOOK 2013: LOOKING BEYOND THE …...2012/11/28 · Your ambition achieved. BMO Capital Markets 1-800-613-0205 CANADIAN OUTLOOK 2013: LOOKING BEYOND THE CLIFF November

Your ambition achieved.™

™BMO Capital Markets

1-800-613-0205 www.bmocm.com/economics

CANADIAN OUTLOOK 2013: LOOKING BEYOND THE CLIFF

November 28, 2012

Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets

© BMO Capital Markets www.bmocm.com/economics

Modest Growth Ahead

Double Dip AvoidedCanada: 2012:Q3 = BMO Capital Markets estimate

Real GDP

04 05 06 07 08 09 10 11 12 13

-9

-6

-3

0

3

6

9

(q/q % chng : ar)10 11 12 13

CanadaUS

3.22.4

2.61.8

2.12.2

2.02.3

CanadaUS

forecast


Is The US Poised to Rebound?

Policy Gridlock: Fiscal Cliff Ahead?Fiscal Tightening

TaxesSpending

Housing TurnaroundUnemployment Remains HighGas Prices

Modest Job Growth

Charts 1-2


US Budget Deficit: Fiscal Cliff Ahead?

Source: CBO

S&P Downgrades US to AA+

– US$ Blns –

81 89 93 01 09 -1,600

-1,200

-800

-400

0

400

– % of Nominal GDP –

1900 1925 1950 1975 2000-32

-24

-16

-8

0

8

Budget Balance – United States

Reagan BushClinton

ObamaBush

World War II

World War I

-6.0%-9.9%

-1,413Record

-1,294

-8.9%

-1,297

-8.7%

-1,089

-7.0%


Do the Right Thing

“You can always count on Americans to do the right thing - after they’ve tried everything else.”

Winston Churchill

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

Winston Churchill

Charts 3-4


Jobless Rates: Record Gap Narrows

SpainGreecePortugalIrelandFranceItalyUKBelgiumAustraliaGermanyJapan

25.825.415.715.110.810.87.87.45.45.44.2

06 07 08 09 10 11 12 134

5

6

7

8

9

10

4.4%

33-year Low5.9%

Unemployment Rate (percent)

US Participation Rate at 30-year Low

7.8% at Obama Inauguration

(Jan ’09) 7.9%

7.4%

10.0%

8.7%

Canada

forecast

US


Big Positive: Auto Recovery

Production(3-mnth ma : sa)

03 05 07 09 11 134

6

8

10

12

14

1.0

1.5

2.0

2.5

3.0

Canada: Oct = estimate

Vehicles (mlns : ar)

Sales

03 05 07 09 11 139

12

15

18

21

0.9

1.2

1.5

1.8

2.1

Canada(rhs)

US(lhs)

Canada(rhs)

US(lhs)

Charts 5-6


Will Canadian Housing Crash?

Macleans, March 2012

Canadian Business,12 January 2012

Report on Business,March 2012

Prices Double in 10 YearsToronto Condo Boom

But...Affordability NormalMarkets Balanced


Home Prices(y/y % chng)

03 05 07 09 11-10

-5

0

5

10

15

US Turning the CornerHouse Prices = Canada: Teranet Composite 11 US: FHFA House Price Index

Housing Starts(000s : ar)

03 05 07 09 11 13400

800

1,200

1,600

2,000

2,400

2,800

40

80

120

160

200

240

280

Existing Home Sales(mlns : ar)

03 05 07 09 11 133

4

5

6

7

8

0.2

0.3

0.4

0.5

0.6

Canadian Housing Finally Cooling

Canada(rhs)

Canada(rhs)

Canada

Crossover

US

US(lhs)

US(lhs)

Charts 7-8


Canadian House Prices: Vancouver ManoeuvreCanada (y/y % chng : January-October 2012)

Existing Home PricesToronto

WinnipegMontreal

HalifaxEdmonton

OttawaCalgaryCanadaVictoria

Vancouver

-8 -6 -4 -2 0 2 4 6 8 10 12

7.55.9

4.13.8

2.52.5

2.01.7

-3.3-6.7

$501,000$254,000$326,000$271,000$335,000$354,000$412,000$365,000$484,000$736,000

AverageHome Price

(weighted)


Average Home Price

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 1450

100

150

200

250

300

350

400

($000s : local currency : nsa)

US = single-family homes

Bargain Hunters Take Note (and a Passport)

Canada

US

$362,000

$227,000

59%

Charts 9-10


Credit(y/y % chng)

05 06 07 08 09 10 11 12 13-5

0

5

10

15

Debt(ratio to personal disposable income)

90 95 00 05 100.8

1.2

1.6

2.0

Households

Debt Burdens Now SimilarHousehold Debt includes household and unincorporated business debt Household Credit = Consumer Credit and Residential Mortgages

Canadian Consumers: Still Borrowing

Crossover

Canada

US

Ottawa Tightens Mortgage Rules...Again

Canada

US


Is the Commodity “SuperCycle” Over?

China Slowing

US Growing

Middle East Turmoil

European Risk

Charts 11-12


95 97 99 01 03 05 07 09 11 13200

400

600

800

1,000

60

70

80

90

100

110

120

Canada (as of November 27, 2012)

BoC Commodity Price Index

(lhs)

C$(US¢ : rhs)

forecast

BoC Commodity Price Index = (January 1972 = 100) forecast = BMO Capital Markets forecasts, monthly averages

Parity

102

Loonie and Commodities: Ties Loosen


Ottawa’s Finances Better

– C$ Blns –

89 94 99 04 09 14

-60

-40

-20

0

20

– % of Nominal GDP –

62 72 82 92 02 12

-10

-8

-6

-4

-2

0

2

forecastPrior Trough

Federal Budget Balance – Canada

Deficit Elimination Plan Knocked Back One YearSource: Federal Fiscal Update

Charts 13-14


Capital Inflows Cool Slightly

Mostly Fixed Income

Canada (C$ blns)

Direct Investment Flows(4-qtr ms)

90 95 00 05 10

-50

-25

0

25

50

75

100

125

Portfolio Investment Flows(12-mnth ms)

90 95 00 05 10

-50

-25

0

25

50

75

100

125

Inflows

InflowsOutflows

Tech

Commodities

Outflows

Record


Canada

09 10 11 12 13

-2

0

2

4

1.2%

United States

09 10 11 12 13

-2

0

2

4

Consumer Price Index (y/y % chng)

forecast

Core

Total 2.2%

Core

Total

2.0%

Total CPI(latest month)

IndiaBrazil

UKEurozone

USChina

CanadaJapan

-3 0 3 6 9 12

9.1

5.4

2.7

2.5

2.2

1.7

1.2

-0.3

Inflation Easing

1.3%

Charts 15-16


What Does this Mean for Interest Rates?

Overnight Rates: Low for Long

Loonie Stays Strong

Bond Yields: Record Lows


10-year Bonds

07 08 09 10 11 12 13

0

1

2

3

4

5

6

7

Overnight Rate

01 03 05 07 09 11 13

0

1

2

3

4

5

6

7

US at Zero for 7 Years? Historic Lows

Interest Rates: Low for Longer

USCanada

forecast

US

Canada

Record Lows 0% - 0.25%

1.00%1.73%Canada1.64%US

2.20%

(% : as of November 27, 2012)

2.00%

’13)(Year-end

Charts 17-18


Opportunities:Emerging Economy DemandForeign Investment InflowsStrong Corporate Balance SheetsLow Borrowing Costs

Canadian Outlook: Challenges & Opportunities

Stop and Start Expansion

Challenges:Global Government DebtStrong C$High Household DebtDemographics

Charts 19-20

Documents

CANADIAN OUTLOOK 2013: LOOKING BEYOND THE …...2012/11/28 · Your ambition achieved. BMO Capital Markets 1-800-613-0205 CANADIAN OUTLOOK 2013: LOOKING BEYOND THE CLIFF November