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Navigating Through Volatile Times . Aron Gampel Vice-President & Deputy Chief Economist. Toronto, Ontario February 14, 2012. Global Output Moves To A Slower Growth Trajectory. Real GDP. annual % change. 2004-07.

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slide1

Navigating Through Volatile Times 

Aron Gampel

Vice-President & Deputy Chief Economist

Toronto, Ontario

February 14, 2012

slide2

Global Output Moves To A Slower Growth Trajectory

Real GDP

annual % change

2004-07

Source: Scotia Economics, Bloomberg, BEA, Statistics Canada, Eurostat.

slide3

America’s Growth Engine & Competitive Realignment

Uneven Sales Performance

Exports to High Growth Regions

index: January 2009 = 100

index: January 2009 = 100

Auto Sales

Pacific Rim

Rest of World

Total Home Sales

South & Central America

Source: Bloomberg.

Source: Bloomberg, NAR.

slide4

European Debt Fuels Economic And Market Volatility…

Fiscal Deficits

Debt

General Government,2010, % of GDP

General Government,2010, % of GDP

n/a

*2011f: 10.3%; 2010: 32% reflects extensive bank support. Source: IMF September 2011, Scotia Economics.

slide5

… That Will Impede Medium-Term Growth Internationally

Fiscal Deficits

Debt

General Government,2010, % of GDP

General Government,2010, % of GDP

Emerging Economies

Emerging Economies

Source: IMF September 2011, Scotia Economics.

slide6

Canada Leads Most Major Nations In Fiscal Repair …

Looking Forward

Budget Balances(FY11*, % of GDP)

Target for Balanced Books**

NL

balanced

Canada Federal

forecast

NS

FY14

SK***

Aggregate Provincial

balanced

AB***

FY14

FY14

BC

MB

FY15

QC

FY14

PE

FY14

U.S. Federal ex. Social Security

Federal

FY17

NB

FY15

budget balances % of GDP

FY18

ON

Source: Budget documents, Statistics Canada, BEA, Scotia Economics.

*Final results except for NL. SK on a General Revenue Fund basis. **Without using reserve funds. ***After transfers. Source: Budget documents, Statistics Canada.

slide7

… And Has A Competitive Tax Advantage

Marginal Effective Tax Rates on Capital

Corporate Income Tax Rates*

2011, %

2012, %

Japan

National Average assumes 10% Prov. CIT rate and cross-Canada HST

U.S.

France

U.S.

Germany

Canada

Italy

U.K.

Small Developed Countries

OECD

Canada

Source: Finance Canada, Finance Ontario.

* Central plus sub-central rates. Source: OECD.

slide8

forecast

forecast

Monetary Policies Geared To Reviving Growth

Central Bank Rates

10-year Bond Yields

%

yield

U.S.

Canada

U.S.

Eurozone

Germany

Canada

Source: Bank of Canada, U.S. Federal Reserve,European Central Bank, Scotia Economics.

Source: Scotia Economics, Bloomberg.

slide9

Canada’s Solid But Uneven Employment Recovery

... As Manufacturing Headwinds Rise

Employment Cresting ...

index: 2004 Q1=100

index: 2004 Q1 = 100

*

*

Construction

*

Canada

Natural Resources

*

Euro zone

Services

Manufacturing

*

U.S.

*

Source: Statistics Canada, Scotia Economics. *January 2012.

slide10

Canadian Household Debt Is A Source Of Concern

Canadians’ Debt-To-Income Now Higher …

… But Less Debt Used To Buy Assets

household* credit liabilities o/s as % of PDY

household* debt o/s as % of assets

U.S.

U.S.

Canada

Canada

Mortgage Delinquencies

Existing Home Sales

$000

% of total loans past due three or more months

units, 000s

U.S.

MLS Sales

MLS Average Price

Canada

* Includes households and unincorporated business.Source: U.S. Federal Reserve, Statistics Canada, Scotia Economics.

Source: MBA, CBA.

slide11

Loonie Strength, U.S. Weakness Hit Canadian Exports

The Loonie Continues to Fly High …

… Despite Weaker Trade Balances

WTI Oil US$/bbl

CADUSD

C$ billions, s.a.

WTI Oil(LHS)

Commodities

Merchandise Trade

Canadian Dollar(RHS)

forecast

Merchandise Trade ex. Commodities

Source: Scotia Economics, Statistics Canada, Bloomberg.

focus on global markets for long term growth
Focus On Global Markets For Long-Term Growth

Exports (Goods & Services)

World Exports

% of GDP, 2010

% of world GDP

Source: World Bank, Scotia Economics. World exports for 2011 is an estimate.

focus on global markets for long term growth1
Focus On Global Markets For Long-Term Growth

Canadian Exports

World Exports

% share of total exports, 2011 ytd

% of world GDP

Source: World Bank, Strategis, Scotia Economics, ytd = Jan - Nov. World exports for 2011 is an estimate.

slide14

Emerging Market Strength Is Helping To Rebalance Growth …

Population

Global GDP (PPP)

billions, 2010*

Korea

% of global GDP, 2010*

Thailand

Vietnam

Indonesia

Canada

Other Asia/Oceania

U.S.

Restof Asia(ex. Japan)

Brazil

Euro area

Russia

Japan

Mexico

* 2010 IMF forecast.

slide15

Emerging Market Strength Is Helping To Rebalance Growth …

Population

billions, 2010*

Korea

Thailand

Vietnam

Indonesia

Canada

U.S.

Restof Asia(ex. Japan)

Brazil

Euro area

Russia

Japan

Mexico

*Market exchange rate, USD. Source: Bank of Canada, IMF WEO estimates, World Bank Development Indicators, CIA Factbook.

* 2010 IMF forecast.

but is reshaping the global manufacturing landscape
… But Is Reshaping The Global Manufacturing Landscape

forecast

forecast

Motor Vehicle Production

Motor Vehicle Sales

millions of units

millions of units

EU & Japan

Europe

North America*

North America*

Brazil, Russia, India & China

China

*Includes light trucks in North America. Source: Scotia Economics, Ward’s Automotive.

slide17

forecast

… But Is Reshaping The Global Manufacturing Landscape

Housing Starts

Motor Vehicle Sales

millions of starts, 2011e

millions of units

EU & Japan

North America*

Brazil, Russia, India & China

Source: Scotia Economics, IMF, Bloomberg.

slide18

forecast

… But Is Reshaping The Global Manufacturing Landscape

Global Oil Consumption

Motor Vehicle Sales

millions of units

1999 = 100

EU & Japan

China

North America*

Emerging Asia

Brazil, Russia, India & China

United States

*Includes light trucks in North America. Source: Scotia Economics, Ward’s Automotive.

slide19

Ontario’s Trade Needs More East-West, Less North-South

International Trade Balance

Ontario Exports Beyond the U.S.

EU27

Other Asia

Mexico

Latin America

Japan

China

$ billions

% of international merchandise trade receipts

India

Source: Strategis trade data.

Trade With Asia*

Interprovincial Trade Balance

% of total, 2011ytd

$ billions

Source: Statistics Canada, Ontario Economic Accounts. *ytd, 2011Q3

* Excludes Middle East; domestic basis. Source: Strategis trade data. 2011ytd = Jan-Nov.

slide20

Canada’s Competitive Challenge

2000-2010 % change, compound annual growth

Source: Scotia Economics.

slide21

Canada’s Competitive Challenge

2000-2010 % change, compound annual growth

Source: Scotia Economics.

slide22

Canada’s Competitive Challenge

2000-2010 % change, compound annual growth

Source: Scotia Economics.

slide23

Canada’s Competitive Challenge

2000-2010 % change, compound annual growth

Source: Scotia Economics.

slide24

Canada’s Competitive Challenge

2000-2010 % change, compound annual growth

Source: Scotia Economics.

slide25

Auto Industry Investment Shifts Away From Canada

Mexico – The Big NAFTA Winner

Investment Slumps in Canada, But Has Stabilized in the U.S. & Mexico*

% of North American output

000s of USD

Canada

Canada

U.S.

Mexico

Mexico

*Investment per vehicle produced in each country. Source: Scotia Economics, Global Auto Report.

slide26

forecast

forecast

Growth And Income Prospects Best In Resource Regions

Nominal GDP Per Capita

Nominal GDP Per Capita

index: 2004=100

index: 2004=100

Newfoundland and Labrador

Saskatchewan

Manitoba

New Brunswick

Alberta

Quebec

B.C.

P.E.I.

Nova Scotia

Ontario

Source: Statistics Canada, Scotia Economics.

demographic trends favour western canada
Demographic Trends Favour Western Canada

Interprovincial Migration

International Migration

% of population, 2011 ytd

% of population, 2011 ytd

Source: Statistics Canada, ytd = 2011 Q1-Q3.

disclaimer
Disclaimer

This report has been prepared by Scotia Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank Group nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.

slide30

Navigating Through Volatile Times 

Aron Gampel

Vice-President & Deputy Chief Economist

Toronto, Ontario

February 14, 2012