Recent Developments in the Canadian Economy: How have the decline in oil prices and a weaker Canadian dollar affected Canada s economy? www.statcan.gc.ca Telling Canada s story in numbers Elizabeth Richards Analytical Studies Branch April 20, 2017 Catalogue no. 11-631-X ISBN 978-0-660-07587-7
Outline The objective of the presentation is to highlight key changes in the economic data since oil prices began to decline in mid-2014. The presentation focuses on: 1. Recent trends related to economic growth and labour market conditions 2. Impact of lower oil prices in current dollar terms 3. Impact of lower oil prices in volume terms 4. Impact of the weaker Canadian dollar on merchandise trade and manufacturing. 2
Topic 1 Recent trends related to economic growth and labour market conditions 3
To what extent has the value of the Canadian dollar been influenced by lower oil prices? Crude oil prices and the value of the Canadian dollar CAN$/US$ 1.10 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 U.S. dollars per barrel 150 130 110 90 70 50 30 0.60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10 Canadian dollar West Texas Intermediate Sources: Statistics Canada, CANSIM table 176-0064, U.S. Energy Information Administration. 4
To what extent have lower energy prices contributed to recent trends in total commodity prices? Commodity price index index (January 2007 = 100) 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total, all commodities Total excluding energy Energy Source: Statistics Canada, CANSIM table 176-0075. 5
How does Canada s recent economic performance compare with other major economies? Real Gross Domestic Product (GDP), expenditure-based, chained volumes index ( 2000=100) 145 140 135 130 125 120 115 110 105 100 95 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Note: = first quarter. Source: OECD, Quarterly National Accounts. Canada United States United Kingdom Germany France Japan 6
At what pace has the economy expanded since the recession? Real GDP, annual growth percent 6.0 5.0 4.0 2.8 % average growth 2.6% average growth 3.0 2.0 1.0 0.0-1.0-2.0-3.0-4.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Statistics Canada, CANSIM table 380-0064. 7
What contributed to the slowdown in economic growth? Percentage point contribution to real GDP growth, by expenditure component Imports - services 2016 2015 Imports - goods Exports - services Exports - goods Investment in inventories General governments gross fixed capital formation Business gross fixed capital formation - machinery and equipment Business gross fixed capital formation - non-residential structures Business gross fixed capital formation - residential structures Household final consumption expenditure Gross domestic product at market prices -1.5-1.0-0.5 0.0 0.5 1.0 1.5 2.0 Source: Statistics Canada, CANSIM table 380-0100. 8
What types of final expenditures contributed to the slowdown in 2015 and 2016? Real GDP, selected aggregates index ( 2007 = 100) 135 125 115 105 95 85 75 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Household final consumption expenditure Non-residential structures, machinery and equipment General governments final consumption expenditure Exports of goods Exports of services Note: = first quarter. Source: Statistics Canada, CANSIM table 380-0064. 9
Which industries contributed to slower economic growth in 2015 and 2016? Real GDP, by selected industries index (January 2007 = 100) 140 130 120 110 100 90 80 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Statistics Canada, CANSIM table 379-0031. Information and communication technology sector Mining, quarrying, and oil and gas extraction Construction Manufacturing Real estate and rental and leasing Professional, scientific and technical services 10
Which provinces experienced the sharpest declines in 2015? Annual growth of real GDP by province, 2014 and 2015 percent 7 5 3 Canada 2.6% Canada 0.9% 1-1 2014 2015-3 -5 Newfoundland and Labrador Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Sources: Statistics Canada, CANSIM tables 379-0030 and 379-0031. 11
How did employment adjust as output slowed in 2015 and 2016? Real GDP and employment year-over-year change (percent) 5 4 3 2 1 0-1 -2-3 -4-5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Real gross domestic product Sources: Statistics Canada, CANSIM tables 282-0087 and 379-0031. Employment 12
How did the composition of employment growth adjust based on recent events? Type of employment year-over-year change (thousands of persons) 500 400 300 200 100 0-100 -200-300 -400-500 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Full-time employment Part-time employment Source: Statistics Canada, CANSIM table 282-0087. 13
To what extent did gains in services offset employment declines in goods industries? Employment in goods and services year-over-year change (thousands of persons) 500 400 300 200 100 0-100 -200-300 -400 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Goods-producing sector Services-producing sector Source: Statistics Canada, CANSIM table 282-0088. 14
How did the labour market in Alberta adjust to lower activity in oil and gas industries? Employment and unemployment rates, Alberta employment rate (percent) 74 72 70 68 unemployment rate (percent) 10 9 8 7 6 5 66 64 4 3 2 1 62 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 Employment rate Unemployment rate Source: Statistics Canada, CANSIM table 282-0087. 15
Topic 2 Impact of lower oil prices in current dollar terms 16
To what extent did Canada s industrial composition shift towards energy prior to the recent drop in oil prices? Contribution to nominal GDP for selected industries Mining and oil and gas extraction Manufacturing Construction 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 2013 2007 2002 percent Sources: Author's calculations; Statistics Canada, CANSIM table 379-0029, 379-0024 and 379-0023. 17
How has Canada s trade balance been affected by the decline in oil prices? Merchandise trade balance, energy and non-energy commodities billions of dollars 10 8 6 4 2 0-2 -4-6 -8-10 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Energy Non-energy Total Source: Statistics Canada, CANSIM table 228-0059. 18
To what extent have non-energy exports offset the energy-related declines? Merchandise exports by commodity group index (January 2007=100) 200 180 160 140 120 100 80 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Energy Non-energy Source: Statistics Canada, CANSIM table 228-0059. 19
How did lower exports of energy products impact Canada s current account position? Current account balances, by income source millions of dollars 25,000 20,000 15,000 10,000 5,000 0-5,000-10,000-15,000-20,000-25,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Primary income Secondary income Services Goods Total current account Source: Statistics Canada, CANSIM table 376-0105. 20
Has the weaker exchange rate led to a lower US- Canada purchasing power parity (PPP)? Purchasing power parity versus exchange rate US$ per CAN$ 1.10 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 U.S. Canada PPP U.S. Canada market exchange rate Note: PPP refers to purchasing power parity. Q refers to quarter. Sources: Macdonald and Rispoli, A Historical Perspective on Recent Movements in Canada's Purchasing Power Parity; Statistics Canada, CANSIM table 176-0064. 21
Topic 3 Impact of lower oil prices in volume terms 22
Have lower energy prices led to lower volumes of energy products exported? Energy exports, in current and chained (2007) dollars millions of dollars 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Energy exports in current dollars Energy exports in chained (2007) dollars Sources: Statistics Canada, CANSIM 228-0059, 228-0061. 23
Which industries were affected by the decline in oil prices? Real GDP, selected industries index (January 2007=100) 24 240 220 200 180 160 140 120 100 80 60 40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Statistics Canada, CANSIM table 379-0031. Conventional oil and gas extraction Non-conventional oil extraction Support activities for mining and oil and gas extraction Crude oil and other pipeline transportation
What type of investments contributed to lower output growth? Business gross fixed capital formation index ( 2007=100) 160 150 140 130 120 110 100 90 80 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total business gross fixed capital formation Non-residential structures Residential structures Machinery and equipment Intellectual property products Note: =first quarter. Source: Statistics Canada, CANSIM table 380-0068. 25
Have trends in real gross national income differed from those in real GDP given recent events? Cumulative growth of real gross domestic product versus real gross national income index (2001 Q3=100) 140 130 120 110 100 90 80 70 60 50 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 Real gross domestic product Real gross national income Note: Q3 stands for third quarter. Source: Macdonald and Rispoli, How big was the Effect of Falling Commodity Prices on Canadian Real Incomes between mid- 2014 and mid-2016?; Statistics Canada CANSIM table 380-0065. 26
Topic 4 Impact of the weaker Canadian dollar on merchandise trade and manufacturing 27
Which commodity groups led non-energy trends in 2015 and 2016? Exports, trend-cycle estimates, selected commodities index (January 2013=100) 180 160 140 120 100 80 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Non-energy: trend-cycle Motor vehicles and parts: trend-cycle Forestry products and building and packaging materials: trend-cycle Consumer goods: trend-cycle Aircraft and other transportation equipment and parts: trend-cycle Metal ores and non-metallic minerals: trend-cycle Source: Author's calculations, Statistics Canada, CANSIM table 228-0059. 28
Which manufacturing industries experienced growth in 2015 and 2016? Real GDP, selected manufacturing industries index (January 2007=100) 140 120 100 80 60 40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Wood product manufacturing Machinery manufacturing Motor vehicles and parts manufacturing Aerospace product and parts manufacturing Source: Statistics Canada, CANSIM table 379-0031. 29
How has manufacturing employment adjusted given recent economic events? Manufacturing employment, Canada and selected provinces index (January 2007=100) 105 100 95 90 85 80 75 70 65 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Canada Quebec Ontario Alberta Source: Statistics Canada, CANSIM table 282-0088. 30
Recent developments in the Canadian economy Since oil prices started to decline in mid-2014, the pace of economic growth has slowed, reflecting lower business investment, while exports and household spending have continued to support growth. Non-energy exports have not offset energy-related declines. The composition of employment growth has changed, as full-time declines, concentrated in Alberta, have been more than offset by broad-based gains in part-time work in 2016. Full-time employment has increased in early 2017. Economic conditions in Alberta have changed markedly since mid-2014. 31
References Macdonald R., and L. Rispoli. 2016a. A Historical Perspective on Recent Movements in Canada s Purchasing Power Parity. Economic Insights, no. 065. Statistics Canada Catalogue no. 11-626X. Ottawa: Statistics Canada. Macdonald R., and L. Rispoli. 2016b. How big was the Effect of Falling Commodity Prices on Canadian Real Incomes between mid-2014 and mid- 2016? Economic Insights, no. 066. Statistics Canada Catalogue no. 11-626X. Ottawa: Statistics Canada. OECD (Organisation for Economic Co-operation and Development). 2017. Quarterly National Accounts: Gross domestic product expenditure approach. OECD Quarterly National Accounts (database). Available at: https://stats.oecd.org/index.aspx?datasetcode=qna (accessed March 9, 2017). U.S. Energy Information Administration. 2017. Cushing, OK, WTI Spot Price FOB Monthly. Spot Prices for Crude Oil and Petroleum Products (table). Available at: https://www.eia.gov/opendata/qb.php?sdid=pet.rwtc.m (accessed April 4, 2017). 32