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G L O B A L A N D C A N A D I A N E C O N O M I C O U T L O O K
26 SEPTEMBER 2019
K P M G M I N I N G E X E C U T I V E A N D D I R E C T O R F O R U M
Dr David Williams
Vice President, Policy
PRESENTED TO
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OUTLINE 2
▪ Highlights
▪ Global economy
▪ Canadian economy
▪ Risks
▪ Conclusion
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HIGHLI GHTS 3
▪ Tepid global GDP growth outlook
▪ Low productivity growth
▪ Trade disputes & uncertainty
▪ Canadian fundamentals look weak
▪ 30-year high population growth lifts GDP, but…
▪ Falling capital intensity
▪ Low productivity growth
▪ Low growth in GDP per capita (0.3% p.a. over past 2 years)
▪ Record national debt (302% of GDP, 8th highest globally)
▪ Risks skewed to the downside
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GLOBAL ECONOMIC OUTLOOK
4
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0
1
2
3
4
5
6
7
US Euro area Japan China Oil-importingEMEs **
Rest of world World
2018 2019* 2020* 2021*
5TEPID GLOB AL GROWTH OUTLOOK
Source: Bank of Canada
Real GDP growth, annual%
15% of
world GDP
18%
33%
12%
4%
18%
* Projections
** Includes India, Brazil, South Africa, South Korea
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6COMMOD ITY PRICES HAVE IMPROVED S INCE JANU ARY
Source: Bank of Canada
Commodity price indices, USD prices, weekly, 3 Jan 2019 = 100
80
90
100
110
120
130
140
150
160
Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19
Total (BCPI) Energy Metals and minerals Forestry Agriculture
Index
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7LONG-TER M DECLINE IN PRODUCTIV ITY & GDP GROWTH
Source: OECD
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8TRADE GROWTH HAS STAL LED
Source: OECD
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9TRADE GROWTH HAS STAL LED
Trade growth, y/y % change quarterly data%
Source: Bank of Canada
China provided
most of the growth
in global trade
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10UNCERTAIN TY DAMPENS MANU FACT UR IN G & INVESTMENT
Source: OECD
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1.2%
1.4%
1.6%
1.8%
2.0%
2.2%
2.4%
3mth 6mth 1 year 2 years 5 years 10 years 30 years (US) /Long term (Can)
U.S. Canada
11INVERTED Y IELD CURVES
Source: Bloomberg 10/9/2019, Bank of Canada 9/9/2019
Yields on Treasury bills/bonds
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12US INFL AT I ON EXPECTAT I ONS HAVE DECLINED
Source: Bank of Canada
Monthly data
Fed target:
2% for
PCE
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CANADIAN ECONOMIC OUTLOOK
13
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14CAN AD I AN ECONOMY IS RUNNING CLOSE TO ITS (ME AGRE )
FULL SPEED
Source: Bank of Canada
Real GDP growth, annual
1.9
1.3
1.9 2.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2018 2019* 2020* 2021*
Potential GDP growth Actual GDP growth* Projected
Potential GDP growth depends on growth in:1. Productivity2. Labour input
%
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0.6%0.3%
0.7%
1.1%
1.5%
-1%
0%
1%
2%
3%
4%
5%
1986 1991 1996 2001 2006 2011 2016
GDP per capita GDP Labour productivity (business sector) Population (RHS)
1530 -YR H IGH POPUL AT I ON GROWTH IS L IFT ING GDP,
BUT NOT PRODUCTIV ITY & GDP PER CAPITA
Source: Statistics Canada
3-year CAGR, quarterly data
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16CAPI TAL INTENSITY IS BELOW PRE -RECESSION LEVELS
Source: Statistics Canada
Real business investment per worker (before depreciation), Canada, 2008Q1 to 2019Q2*
$/worker* 4 quarter average, 2012 chained dollars
-1446-73
-689
-532
-1500 -1300 -1100 -900 -700 -500 -300 -100 100 300 500
TOTAL
NON-RESIDENTIAL STRUCTURESNon-residential buildings
Engineering structures
MACHINERY AND EQUIPMENTIndustrial machinery & equipment
Other electrical, electronic machinery & equipmentOther machinery & equipment
Furniture, fixtures & prefabricated structuresPassenger cars
Aircraft & other transport equipmentCommunications & audio-video equipment
Trucks, buses & other motor vehiclesComputers & computer peripheral equipment
INTELLECTUAL PROPERTY PRODUCTSMineral exploration & evaluation
Research & developmentSoftware
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17CAN AD A HAS L ITTLE IDLE CAPAC ITY
Source: Bank of Canada
Estimates of potential GDP less actual GDP (“output gap”), Canada, quarterly
-5
-4
-3
-2
-1
0
1
2
3
2019Q22017Q22015Q22013Q22011Q22009Q22007Q22005Q2
Integrated framework Extended multivariate filter
% of GDP
2019Q2: -0.4% to -0.9% of GDP
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18CORE INFL ATI ON MEASURES ARE CLOSE TO 2% TAR GET
Source: Bank of Canada
Year/year percentage change, monthly data
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RISKS
19
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RISKS TO THE CAN ADI AN OUTLOOK 20
▪ Upside
▪ Stronger U.S. growth (e.g. productivity acceleration; fiscal stimulus)
▪ Looser monetary policy by global central banks
▪ Credit boom accelerates again
▪ Downside
▪ Tighter financial conditions
▪ Weaker growth in China and lower commodity prices
▪ Disorderly unwinding of high global indebtedness (esp. China, HK, Canada)
▪ Risks are skewed to the downside
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21CAN AD A’S POST-2005 CREDIT BOOM IS YET TO UNWIND
Credit to GDP ratios in the non-financial sector, market value
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0
50
100
150
200
250
300
350
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Households Non-financial corporations Government Canadian recessionsSource: BIS, C.D. Howe Institute
% of GDP
Corporate debt boom begins (2006)
Household debt boom begins (2001)
Government debt boom begins (2008)
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22BOC: TRADE R ISKS ARE SKEWED TO THE DOWNSIDE
Source: Bank of Canada July MPR
Percentage change in real GDP relative to BOC’s base case projection in 2021Q4
Upside: tariff changes over past 2yrs are reversed and all trade-related uncertainty dissipates
Downside: U.S. imposes 25% tariffs on all imports and trading partners respond in-kind; trade-related uncertainty increases
GDP ↓3% (world) ↓6% (Canada)Global commodity prices ↓30%Terms of trade ↓, CAD ↓25%
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CONCLUSION
23
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CONCLUSION 24
▪ Tepid global GDP growth outlook
▪ Low productivity growth
▪ Trade disputes & uncertainty
▪ Canadian fundamentals look weak
▪ 30-year high population growth lifts GDP, but…
▪ Falling capital intensity
▪ Low productivity growth
▪ Low growth in GDP per capita (0.3% p.a. over past 2 years)
▪ Record national debt (302% of GDP, 8th highest globally)
▪ Risks skewed to the downside
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QUESTIONS
26
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EXTRA CHARTS
27
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28NEAR- TER M GLOB AL OUTLOOK WEAKENS
Source: OECD
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29LIV ING STAND ARDS HAVE STAGN ATED S INCE 2007
Source: OECD* 2007-17 CAGR
Real GDP per capita, compound annual growth rate, 2007-2018
-1%
0%
1%
2%
3%
Germany Australia OECD* US G7 Japan CANADA Euro area France UK Italy
Labour productivity Labour utilization GDP per capita GDP per capita (2000-07)
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30DISAPP OIN T IN G PRODUCTIV ITY GROWTH S INCE 2007
Source: OECD* 2007-17 CAGR
Growth in labour productivity (GDP per hour worked), CAGR
1.1%
0.8%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
US UK OECD* G7 Germany Japan France Australia CANADA Euro area Italy
2000-07 2007-18
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31REAL WAGE GROWTH IS WEAK
Source: Statistics Canada
Real compensation per employee*, 5-year CAGR, Canada
0.6%
-1%
0%
1%
2%
3%
Q1 1984 Q1 1989 Q1 1994 Q1 1999 Q1 2004 Q1 2009 Q1 2014
* Nominal total compensation per employee deflated by household consumption deflator
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32EMPLOYMENT GROWTH IS RAIS IN G TOTAL HOURS WORKED
Source: Bank of Canada
Year/year percentage change, quarterly data
-3%
-2%
-1%
0%
1%
2%
3%
4%
Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019
Employment Average hours worked Total hours worked
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33CAPI TAL INTENSITY IS FALL IN G
Source: Statistics Canada
Real business gross fixed capital formation per worker, Canada, y/y % change
-4%
-30%
-20%
-10%
0%
10%
20%
30%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Non-residential structures Machinery and equipment Intellectual property products Total