strategictransportation

& tourismsolutions

The Recession: How Deep, How Long?

Prepared for

Helicopter Association of CanadaConference and Trade Show

Prepared byInterVISTAS Consulting

31 March 2009

Kahlil PhilanderSenior Analyst

InterVISTAS Consulting Inc.

1

Introduction

U.S./World OutlookCanadian OutlookRecovery IndicatorsEmerging Economic Issues

strategictransportation

& tourismsolutions

U.S./World Outlook

3

Importance of International Markets to Canada

“Stabilization of the global financial system is a precondition for economic recovery globally and in Canada.”Mark CarneyGovernor of the Bank of Canada

4

Global Outlook has become Gloomier

2007 2008 (e) 2009 (f)

Forecast % Change

since Nov ‘08

Canada 2.7% 0.6% -1.2% (-1.5)

United States 2.0% 1.1% -1.6% (-0.9)

United Kingdom 3.0% 0.7% -2.8% (-1.5)

Euro area 2.6% 1.0% -2.0% (-1.5)

China 13.0% 9.0% 6.7% (-1.8)

India 9.3% 7.3% 5.1% (-1.2)Emerging and developing economies 8.3% 6.3% 3.3% (-1.8)

Source: IMF World Economic Outlook Update (January 2009)

IMF Economic Outlook – Real GDP Forecast

5

US Real GDP Growth

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%20

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Rec

essi

on

Rec

essi

on

Historical Forecast

Recessions as defined by the National Bureau of Economic Research

Sources: Historical – Bureau of Economic Analysis, Update of Congressional Budget Office’s Budget and Economic Outlook (March 2009)

Rec

essi

on

Congressional Budget Office

6

Uncertainty in U.S. GDP Forecasts

Update of Congressional Budget Office’s Budget and Economic Outlook (March 2009)

Historical Forecast

7

Comparing recessions

There have been six recessions in the last 40 yearsThe current recession is tracking below the lowest

Source: Federal Reserve Bank of St. Louis (March 2009)

8

Fed acted quickly, but traditional options are exhausted

Sources: Board of Governors of the U.S. Federal Reserve, Bank of Canada

0

1

2

3

4

5

6

7

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Pol

icy

Rat

e (P

erce

ntag

e)

US Intended Federal Funds Rate

Bank of Canada Target for the Overnight Rate

9

Traditional Monetary Policy and the Zero Lower Bound

Sources: Board of Governors of the U.S. Federal Reserve, National Bureau of Economic Research

0

2

4

6

8

10

12

14

16

18

2019

5419

5619

5819

6019

6219

6419

6619

6819

7019

7219

7419

7619

7819

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

08

Effe

ctiv

e Fe

dera

l Fun

ds R

ate

(Per

cent

)

Recession IndicatorFedRate

10

Policy Options at the Zero Lower Bound

Fiscal PolicyDeficit spendingTypically infrastructure related – “public goods”

Quantitative Easing“Modern Money Printing”Providing additional liquidityUnconventional easing has so far shown to be difficult

11

Fed has been Expanding Money Supply

M2 (Currency, checking, and savings deposits) expanded at an annual rate over 30% in December

Sources: Federal Reserve Economic Data, M2 Money Stock, Compounded Annual Rate of Change

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2003

2004

2005

2006

2007

2008

strategictransportation

& tourismsolutions

Canadian Outlook

13

Canada Real GDP Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%20

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Historical Forecast

Rec

essi

on

Rec

essi

on

Sources: Historical – Statistics Canada, Bank of Canada Monetary Policy Report (January 2009)

Bank of Canada

14

BoC has made considerable revisions to its forecasts

Sources: Bank of Canada Monetary Policy Reports

-6%

-4%

-2%

0%

2%

4%

6%20

08-1

2008

-2

2008

-3

2008

-4

2009

-1

2009

-2

2009

-3

2009

-4

2010

-1

2010

-2

2010

-3

2010

-4

Rea

l GD

P G

row

th R

ate

(Q/Q

Ann

ualiz

ed) January-09

October-08April-08January-08

15

Commercial banks have different outlooks in the near term

Sources: Commercial Bank Forecasts

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2008

-1

2008

-2

2008

-3

2008

-4

2009

-1

2009

-2

2009

-3

2009

-4

2010

-1

2010

-2

2010

-3

2010

-4

Rea

l GD

P G

row

th (A

nnua

lized

Q/Q

Per

cent

age)

Statcan (Actual)BMO - March 20, 2009CIBC - March 2, 2009RBC - March 12, 2009Scotia - March 5, 2009TD - March 12, 2009

ForecastHistorical

16

Provincial Outlook – Real GDP Growth

2008: 1.4%

2009F:-2.4%

2008:1.2%

2009F:-2.7%

2008:-0.2%

2009F:-2.9%

2008:2.1%

2009F:-1.3%

2008:2.8%

2009F:0.5%

2008:0.4%

2009F:-1.6%

2008:1.0%

2009F:-1.2%

2008:1.2%

2009F:-2.0%

2008:1.3%

2009F:-2.5%

2008:0.8%

2009F:-1.0%

Canada Overall2008:0.5%

2009:-2.4%

Source: Provincial Economic Outlook - BMO Capital Markets Economics (20 March 2009)

17

Balance of trade has shifted to trade deficit

Source: Statistics Canada

05

101520253035404550

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09

Trad

e Vo

lum

es (B

illio

ns o

f Dol

lars

)

Imports Exports

18

Sharp Drop in Commodity Prices

Source: Statistics Canada

50

100

150

200

250

300

35020

00-0

120

00-0

720

01-0

120

01-0

720

02-0

120

02-0

720

03-0

120

03-0

720

04-0

120

04-0

720

05-0

120

05-0

720

06-0

120

06-0

720

07-0

120

07-0

720

08-0

120

08-0

720

09-0

1

Com

mod

ity P

rice

Inde

x

19

Commodity Prices affecting the exchange rate

Source: Statistics Canada, The Pacific Exchange Rate Service

50

100

150

200

250

300

35020

00-0

120

00-0

720

01-0

120

01-0

720

02-0

120

02-0

720

03-0

120

03-0

720

04-0

120

04-0

720

05-0

120

05-0

720

06-0

120

06-0

720

07-0

120

07-0

720

08-0

120

08-0

720

09-0

1

Com

mod

ity P

rice

Inde

x

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

US

D/C

AD

BoC Commodity Index

CAD/USD ExchangeRate

Correlation since 2000: 0.94

20

Exchange Rate

Sources: Commercial Bank Forecasts

$1.00

$1.05

$1.10

$1.15

$1.20

$1.25

$1.30

$1.35

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2009 2009 2009 2010 2010 2010 2010

CAD

/USD

BMOCIBCRBCScotiaTDAverage

21

Canada’s Economic Action Plan

Canada’s Economic Action Plan will provide almost $18 billion in this year’s budget

1.5% of GDPInvestment includes expenditures on infrastructure, housing construction, business tax relief, and labour

Additional loans to the auto sector and municipalities for housing-related infrastructure

Total 2009-2010 stimulus with leverage equals 1.9% of GDP

Total package is expected to create or maintain 190,000 jobs

strategictransportation

& tourismsolutions

Recovery Indicators

23

Bellone Index

An average lead of 9 months in predicting the post-war US recessionsThe model has produced only one false signal in 1966-1967

Credit crunch, that some economists consider close to a recession

In February 2009, the leading probability of a recession was down from 8% to 5%.

Preliminary estimates indicate that the coincident probability of a recession in January was unchanged at 100%

24

Leading probability recession indicator

25

Canadian housing starts are expected to slow down

Source: Canadian Mortgage and Housing Corporation

0

50,000

100,000

150,000

200,000

250,000

200

4

200

5

200

6

200

7

200

8

200

9(F)

201

0(F)

Total Housing Starts

Forecast

26

Residential resale prices to continue to fall

Source: Canadian Mortgage and Housing Corporation

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2004 2005 2006 2007 2008 2009(F) 2010(F)

Average Residential Resale Price Change

Forecast

27

Consumer Confidence

Consumer Confidence:Canada: Harris-Decima Index of Consumer Confidence rose to 67.0 in March

Fell from August 2008 to a low in December 2008

United States: The Reuters/University of Michigan Surveys of Consumers' preliminary March consumer sentiment index near 28-year low

Increased slightly in March to 56.6 from February's value of 56.3

28

Oil price futures in contango, but stabilizing

Source: Nymex

$-

$20

$40

$60

$80

$100

$120

$140

$160

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

US

$ pe

r Bar

rel

May 2008

March 2009 (Current)

Dec 2008

Sep 2008Mar 2008

Crude Oil Spot Prices

Crude Oil Future Prices

29

Stock market has rallied but may be a correction in a larger bear market

30

Rally has brought market well above its 20-day moving average

strategictransportation

& tourismsolutions

Emerging Economic Issues: Greenhouse Gas Policy

32

Regulation is Coming

The EU plans is adding aviation to its Emissions Trading Scheme (ETS) starting in 2012Australia is in the process of defining a cap-and-trade system which is likely to include aviationBritish Columbia has introduced North America’s first true carbon taxCap & trade legislation inevitable regionally if not nationally

33

New Energy for America Plan

Create five million new jobs $150 billion over the next ten years Within 10 years save more oil than currently imported from the Middle East and Venezuela combined

Put 1 million Plug-In Hybrid cars on the road by 2015 Ensure 10 percent of electricity comes from renewable sources by 2012, and 25 percent by 2025.Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.

34

Canada likely to Follow Suit

Canada and the United States have similar targets for reducing greenhouse gas emissions

Would likely establish separate but similar cap-and-trade systems

“One of the challenges that we faced in the past was we had an American administration that was not taking any action on climate change, and in that context anything you did as a Canadian government was imposing a competitive burden on Canadian industry and Canadian jobs." – Environment Minister Jim PrenticeSome talk of establishing softer "intensity-based" caps instead of "hard" caps on carbon emissions

strategictransportation

& tourismsolutions

Closing Commentswww.intervistas.com