Global economy maintaining solid growth momentum. Canada leading the pack

Transcription

1 Global economy maintaining solid growth momentum Canada leading the pack Dawn Desjardins (Deputy Chief Economist) (416) September 2017

2 Brighter global outlook gains traction World GDP growth % change 6 5 Forecast Source: International Monetary Fund, RBC Economics Research 2

3 An impressive recovery in trade despite policy uncertainty Global Trade Volume % Change Year over Year, SA, 2010= Source: Netherlands Bureau of Economic Policy Analysis, RBC Economics Research 3

4 Unemployment rates signal full employment is close Unemployment rate: % U.S. United Kingdom Euro area Canada Source: Bureau of Labor Statistics, Statistics Canada, Statistical Office of the European Communities, RBC Economics Research 4

5 Inflation trending lower, UK outlier Headline Inflation: International % change, year-over-year 5.0 Forecast UK Euro Zone Canada US Source: Statistics Canada, Bureau of Labor Statistics, RBC Economics Research 5

6 Canada and the US: more rate hikes coming % 7 6 ECB Deposit rate Forecast % 7 6 U.K. policy rate Forecast Source: ECB, RBC Economics Research Source: Bank of England, RBC Economics Research % 7 6 Canadian overnight rate Forecast % 7 6 U.S. target rate Forecast Source: Bank of Canada, Federal Reserve Board, RBC Economics Research Source: Bank of Canada, Federal Reserve Board, RBC Economics Research 6

7 Financial conditions continue to support economies Global Financial Conditions financial conditions index (normalized) 2.0 easier tighter Canada* Emerging Markets** US Eurozone Source: RBC Economics, Bank of Canada, Bloomberg, J.P. Morgan, FRB St. Louis, RBC Capital Markets *BoC FCI discontinued as of 4 Dec 2015; subsequent estimates are RBC Economics' approximation 7

8 U.S. economy: solid performance despite policy uncertainty U.S. real GDP growth Quarter-over-quarter annualized % change Annual Growth Rates f f Forecast: Source: Bureau of Economic Analysis, RBC Economics Research 8

9 US business investment to ramp up; solid consumer spending U.S. real GDP growth composition Percentage points 3.0 Consumer spending Government spending Residential investment Non-res. investment Net trade Inventories f 2018f Source: Bureau of Economics Analysis, RBC Economics Research 9

10 Fed has achieved full employment goal; price stability on horizon U.S. Inflation and consumption deflator % change, year-over-year Headline CPI US PCE Deflator Forecast Unemployment rate: U.S. % Forecast Source: Bureau of Labor Statistics, Bureau of Economic Analysis, RBC Economics Research Source: Bureau of Labor Statistics, RBC Economics Research 10

11 supporting case for reducing policy stimulus Interest rates: U.S. % Year bond yield Fed Funds rate Forecast Source: Federal Reserve, RBC Economics Research 11

12 Canada set to be growth leader in Real GDP growth 2017 forecast % change Canada U.S. U.K. Euro area Japan Source: IMF, Statistics Canada, RBC Economics Research 12

13 Economy is running well above its potential growth rate Canada's real GDP Quarter-over-quarter % change, annualized rate Forecast 8 6 Real GDP % 2017f 2.9% 2018f 2.0% Source: Statistics Canada, RBC Economics Research Forecasts 13

14 Consumers, government spend and drag from investment disappearing Canada real GDP growth composition Percentage points 4.0 Consumer spending Government spending Residential investment Non-res. investment Net trade Inventories f 2018f Source: Statistics Canada, RBC Economics Research 14

15 Government spending ramping up Canada Federal fiscal support Percentage point support to annual GDP growth Federal Fall 2016 Budget Update Infrastructure Announcement Federal Budget 2016 Impact (infrastructure + tax changes) Source: Statistics Canada, RBC Economics Research 15

16 Growing number of businesses intend to invest Bank's Business Outlook Survey: M&E Investment % Source: Statistics Canada, RBC Economics Research 16

17 Investment turnaround started in early 2017 Real business fixed investment Q4/Q4 % change Forecast Source: Statistics Canada, RBC Economics Research 17

18 Trade activity heating up Real merchandise trade: Canada Billion constant 2007 $ Exports Imports Source: Statistics Canada, RBC Economics Research 18

19 Correction in Ontario contributed to national sales decline Existing home sales Thousands, SAAR Canada Ontario Source: CREA, RBC Economics Research 19

20 Policies effective in slowing price gains MLS Home Price Index Year-over-year % change Vancouver Toronto July 25, 2016: BC government announces 15% foreign buyer tax in Metro Vancouver, effective Aug. 2, April 20, 2017: Ontario government announces housing action plan that includes a non-resident buyer tax of 15% effective immediately Source: CREA, RBC Economics Research 20

21 Home sales activity on slower trajectory Home resales: Canada Thousands of units Forecast: year average Source: Canadian Real Estate Association, RBC Economics Research 21

22 Period of rapid price appreciation coming to an end Home prices in Canada Annual % change, composite Forecast: Source: Brookfield RPS, Royal LePage, CREA, RBC Economics Research 22

23 Cooling in housing market will have some knock-on effects Economic activity exposed to a housing market % of GDP, four quarters ending Q New construction Renovations Ownership transfer costs Transportation Financial Services Household-related G&S Food & Beverage Recreation and Culture Source: Statistics Canada, RBC Economics Research 23

24 A slowing in consumer spending likely ahead Consumer expenditures in Canada Quarter-over-quarter % change, annualized 10 8 Forecast GDP (YoY) Consumer Spending Annual Growth Rates f f Source: Statistics Canada, RBC Economics Research 24

25 Credit balances trended higher in 2017 Canada : Total household credit % Change, Year-over-year Source: Bank of Canada, RBC Economics Research 25

26 Rate increases will boost debt service burdens modestly Debt service ratio - Canada Debt service payments on mortgage and non-mortgage debt as % of PDI, seasonally adjusted 12 Forecast Interest Principal Source: Statistics Canada, RBC Economics Research 26

27 Not all households have debt; one-third have $50K or more Debt Free 13% <$5k 4% 6% 7% 4% 8% 13% 12% 33% $5k-<$25k $25k-<$50k $50k-<$75k $75k-<$100k $100k-<$150k $150k-<$200k $200k+ 27

28 Strong job gains underpin household spending Canada :Employment 12-month change SA Thousands Source: Statistics Canada, RBC Economics Research 28

29 Signs that wages are picking up pace Canadian wage growth Year-over-year percent change SEPH fixed-weight average hourly earnings (3mth moving average) Average hourly compensation (quarterly data) Source: Statistics Canada, RBC Economics Research 29

30 Oil prices range-bound around $50.00 West Texas Intermediate (WTI) $US/bbl Forecast Annual Levels 20 WTI 2015 $ $ f $ f $ Source: Energy Information Administration/Wall Street Journal, RBC Economics Research 30

31 C$ rallied as BOC switched gears Canadian dollar forecast US$/C$ 1.1 Forecast 1.0 Parity US$/C$ End of period f f Source: Bank of Canada, RBC Economics Research Forecasts 31

32 % points Change in Bank of Canada s policy stance saw spreads collapse Canada and U.S. 2-year bond yield spread Source: Bank of Canada, Federal Reserve Board, RBC Economics Research 32

33 Bank of Canada: output gap closure in sight Interest rates: Canada % 7 10 Year bond yield BoC overnight rate 6 5 Forecast Source: Bank of Canada, RBC Economics Research 33

34 BC and Ontario lead; Alberta playing catch-up after recession Canada Provincial Real GDP Forecast Annual percent change estimate 2017 forecast 2018 forecast B.C. ONT. N.B. MAN. P.E.I. QUE. N.S. SASK. N.& L. ALTA. Source: Statistics Canada, RBC Economics Research 34

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