ECONOMICS I RESEARCH Economic Outlook: fear over fundamentals April 2016 Craig Wright (SVP & Chief Economist) (416) 974-7457 craig.wright@rbc.com
Volatility index Market volatility index, (VIX) 90 80 70 60 50 40 30 20 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Wall Street Journal, RBC Economics Research ECONOMICS I RESEARCH 2
Central bank policy rates %, eop 7 6 5 4 3 2 1 Canada U.S. UK Eurozone Forecast -1 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: Bank of Canada, Federal Reserve Board, Bank of England, European Central Bank, RBC Economics Research ECONOMICS I RESEARCH 3
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016 2017 Real GDP: China % change, year-over-year 16 14 12 10 8 6 4 2 9.0 10.010.1 11.3 12.6 14.2 Forecast 9.7 10.0 10.79.5 10.2 10.0 9.1 9.4 8.6 7.7 7.7 8.0 7.6 7.9 7.8 7.9 7.3 7.5 7.6 7.5 7.3 7.4 6.9 7.2 7.2 7.1 7.0 6.8 6.8 6.5 6.2 Source: CNBS, Haver Analytics, IMF, RBC Economics Research Forecasts ECONOMICS I RESEARCH 4
Advanced versus emerging economies GDP growth % change, year-over-year 12 10 8 6 4 2 0-2 -4-6 -8-10 -12-14 Advanced Economies Emerging and Developing World Annual Growth Rates 2014 1.8 4.6 3.4 2015 1.9 4.0 3.1 2016f 1.9 4.1 3.2 2017f 2.0 4.6 3.5 Forecast 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: International Monetary Fund, RBC Economics Research Forecasts ECONOMICS I RESEARCH 5
Oil prices: WTI and WCS $US/bbl 140 120 100 Western Canadian Select (WCS) West Texas Intermediate (WTI) Forecast 80 60 40 20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bloomberg, Wall Street Journal, RBC Economics Research ECONOMICS I RESEARCH 6
U.S. real GDP Quarter-over-quarter annualized % change 10 Forecast: 8 6 4 2 0-2 -4-6 -8 Real GDP Annual Growth Rates 2014 2.4 2015 2.4 2016f 2.0 2017f 2.4-10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bureau of Economic Analysis, RBC Economics Research ECONOMICS I RESEARCH 7
Private sector employment growth: U.S. Change from previous month (Thous.) 600 400 200 0-200 -400-600 -800-1000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bureau of Labor Statistics, RBC Economics Research ECONOMICS I RESEARCH 8
Interest rates: U.S. % 7 6 5 10 Year Bond Yield Forecast 4 3 2 1 Fed Funds Rate 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Federal Reserve, RBC Economics Research ECONOMICS I RESEARCH 9
Real Broad Trade-Weighted Exchange Value of the US$ Index: 1990=100 130 125 120 115 110 105 100 95 90 85 80 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: Federal Reserve Board, RBC Economics Research ECONOMICS I RESEARCH 10
Canadian dollar and commodity prices US$/C$ 1.10 NSA, Jan-1972=100 1200 1.00 1000 0.90 800 0.80 600 0.70 400 0.60 Canadian Dollar (LHS) Commodity Prices (RHS) 200 0.50 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 Source: Bank of Canada, Federal Reserve Board, RBC Economics Research ECONOMICS I RESEARCH 11
Canadian real GDP growth composition forecast Percentage points 2.0 1.5 1.0 0.5 0.0-0.5-1.0 2015 2016-1.5 Consumer spending Government spending Residential investment Non-res. investment Net external trade Inventories Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 12
Canadian exports by sector Index: 2007 Q2 = 100 140 Non-energy commodities (29% of total exports) 130 120 Non-commodities (51% of total exports) Energy commodities (20% of total exports) Foreign activity measure 110 100 90 80 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Statistics Canada, Bank of Canada, RBC Economics Research ECONOMICS I RESEARCH 13
Non-financial corporate liquidity Cash & deposits as a % of GDP 35 Canada 30 25 U.S. UK 20 15 10 5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Statistics Canada, ONS, FRB, RBC Economics Research ECONOMICS I RESEARCH 14
Labour market: Canada SA, millions 18.5 18.0 17.5 17.0 16.5 16.0 15.5 15.0 14.5 14.0 Employment (LHS) Unemployment rate (RHS) % 9 8 7 6 5 13.5 13.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 4 Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 15
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Household debt-to-income and debt service ratio: Canada (US Comparable) Credit market debt as a % of PDI Interest payments as a % of PDI 160 12 150 140 130 120 Debt-to-income (LHS) 11 10 9 110 100 90 80 Debt service ratio (RHS) 8 7 6 70 5 Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 16
1995 96 1996 97 1997 98 1998 99 1999 00 2000 01 2001 02 2002 03 2003 04 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Federal government budgetary balance Billions of dollars 30 20 Federal budget projection 10 0 1.9-10 -20-30 -40-50 -60-55.6-26.3-33.4-18.9-5.2-5.4-29.4-29.0-17.7-14.3-22.8 Source: Department of Finance, RBC Economics Research Forecasts ECONOMICS I RESEARCH 17
Canada's real GDP growth Quarter-over-quarter % change, annualized rate 8 Forecast: 6 4 2 0-2 -4-6 -8 Real GDP Annual Growth Rates 2014 2.5 2015 1.2 2016f 2.0 2017f 2.3-10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 18
Interest rates: Canada % 7 6 10-year Bond Yield Forecast 5 4 3 2 1 BOC Overnight Rate 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bank of Canada, RBC Economics Research ECONOMICS I RESEARCH 19
Provincial real GDP growth Annual % change, ranked by 2015 growth B.C. ONT. MAN. P.E.I CANADA QUE. N.B. N.S. SASK. ALTA. N.& L. -3.5 2015 2016-0.8-1.8-1.6-0.1 0.4 2.8 2.9 2.5 2.3 1.8 2.2 1.5 1.2 1.2 2.0 1.0 1.4 1.0 0.9 1.3 1.2-4 -3-2 -1 1 2 3 4 5 Sources: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 20
British Columbia: Exports Year-over-year % change 60 40 20-20 -40-60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 21
British Columbia: Employment annual % change 4 Forecast: 3 2 1.9 1 0.6 1.2 0.8-1 -2-3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 22
Unemployment rate: British Columbia and Canada %, SA 9 8 Canada Forecast 7 6 5 4 British Columbia 3 2 1 Canada British Columbia Annual Rate 2014 2015 6.9 6.9 6.1 6.2 2016f 7.0 6.1 2017f 6.7 6.0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 23
British Columbia: Net Migration Thousands of persons 80 70 60 50 40 30 20 10 Net Interprovincial Net International -10-20 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 ** No data avaible for Net International migration prior to 1992 Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 24
Home resales by province - 2015 % change 25 20 22.0 15 10 5 5.5 1.4 9.7 5.1 5.3-5 -10-15 -20-25 -21.3-10.8 Canada BC AB SK MB ON QC AC Source: CREA, RBC Economics Research ECONOMICS I RESEARCH 25
Home price by province - 2015 % change 10 9 8 7.8 8.7 7 6 5 4.8 4 3 2 1.9 2.4 1 0.2 0.3 0.4 Canada BC AB SK MB ON QC AC Source: Royal LePage, RBC Economics Research ECONOMICS I RESEARCH 26
MLS HPI by major market YoY % change, composite price, March 2016 25 20 23.2 22.8 22.1 15 10 5 0 9.1 11.6 10.8 4.9 7.1 1.5 1.2 0.5-5 -2.7-3.7-10 Aggregate Vancouver Lower Mainland Fraser Valley Toronto Victoria Moncton Vancouver Island Montreal Ottawa Regina Saskatoon Calgary Source: The Canadian Real Estate Association, RBC Economics Research ECONOMICS I RESEARCH 27
RBC Housing Affordability Measures - aggregate Ownership costs as % of household income 100 80 Vancouver 60 Toronto 40 Canada 20 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source:Brookfield RPS, Royal LePage, Statistics Canada, Bank of Canada, RBC Economics Research ECONOMICS I RESEARCH 28
Sales-to-new listings ratio Monthly, S.A., Vancouver 1.2 1.0 Seller's market 0.8 0.6 0.4 Balanced market 0.2 Buyer's market 0.0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: RBC Economics Research, Canadian Real Estate Association ECONOMICS I RESEARCH 29
Months of inventory Monthly, S.A., British Columbia 18 16 Long-term average 14 12 10 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: RBC Economics Research, Canadian Real Estate Association ECONOMICS I RESEARCH 30
British Columbia housing starts SAAR, Thousands of units Forecasted values: 60 50 40 30 27 28 32 36 31 20 10 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Source: Canada Mortgage and Housing Corporation, RBC Economics Research ECONOMICS I RESEARCH 31
Retail sales: British Columbia year-over-year % change 20 Forecast 15 10 5 5.6 6.8 4.6 4.3 0-5 -10 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 32
British Columbia's budget balance 5 Billion $ 4 3 2.69 2.96 3.97 2.75 BC government projection 2 1.68 1 0.07 0.33 0.38 0.26 0.29 0.37-1 -0.25-2 -1.34-1.81-1.85-1.17-3 -2.62-4 02/03 04/05 06/07 08/09 10/11 12/13 14/15 16/17 18/19 Source: British Columbia Ministry of Finance, RBC Economics Research ECONOMICS I RESEARCH 33
Net debt-to-gdp ratio - FY14/15 % 60 50 50.1 40 35.6 38.5 38.8 39.4 30 30.8 29.5 20 16.4 10 6.7-10 Nfld. P.E.I. N.S. N.B. Que. Ont. Man. Sask. Alta. B.C. -3.5 Numbers are based on reports from individual governments and, due to accounting and /or reporting differences, are not strictly comparable. Source: Provincial governments, RBC Economics Research ECONOMICS I RESEARCH 34
Real GDP : British Columbia % change, year-over-year 8 6 Forecast 4 2 0-2 -4-6 Canada B.C. Annual Rate 2014 2.5 3.2 2015f 1.2 2.8 2016f 2.0 2.9 2017f 2.3 2.7-8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Canada 2015 GDP is actual Source: Statistics Canada, RBC Economics Research ECONOMICS I RESEARCH 35
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