Presentation is loading. Please wait.

Presentation is loading. Please wait.

Economics Department 0 Economic and Financial Market Prospects & Risks Earl Sweet Economic Research BMO Harrisbank Canada-U.S. Business Council March 13,

Similar presentations


Presentation on theme: "Economics Department 0 Economic and Financial Market Prospects & Risks Earl Sweet Economic Research BMO Harrisbank Canada-U.S. Business Council March 13,"— Presentation transcript:

1 Economics Department 0 Economic and Financial Market Prospects & Risks Earl Sweet Economic Research BMO Harrisbank Canada-U.S. Business Council March 13, 2013

2 1 Global Economy  Global economy turning the corner  Emerging markets responding to policy stimulus  U.S. domestic demand strengthening  Euro Area recession to end by 2013:H2 – tepid recovery  Euro Area crisis shifting from acute to chronic  Jobless rate 11.9% and rising; 26%+ in Spain & Greece  Banks hobbled – FI loan growth still negative  Some progress in fiscal reforms, but performance gaps are still huge  Commodities off peaks, but still relatively high

3 2 Vague promise by the ECB to do what’s necessary to save the euro have actually worked, for now … Source: Reuters; BMO Economics

4 3 … but can’t cure the euro zone disease of wide economic and fiscal performance gaps in a single-currency region Source: Eurostat

5 4 Outside of the Euro Area, growth is gaining momentum; exports and industrial production in Asia are strengthening Source: Netherlands Bureau for Economic Policy Analysis

6 5 Global economic growth troughed in 2012; moderate pick-up anticipated for next two years Source: IMF; BMO Economics

7 6 Commodity prices are being supported by robust growth in emerging markets and, in some cases, supply constraints Source: BMO Economics

8 7 North American Economic Outlook  U.S. energy revolution  Falling reliance on imports  ‘Natural gas advantage’ to boost manufacturing  Fiscal reconciliation in Washington?  Boost to confidence and growth  Diverging U.S. and Canadian trends  Consumer spending  Residential real estate  Business investment  Interest rates to remain low in both countries through 2014  C$ below parity in 2013; upside risk in 2014

9 8 New drilling technologies are unlocking massive oil and natural gas resources from shale formations … Source: Energy Information Administration, Department of Energy

10 9 … significantly reducing net energy import requirements Source: Energy Information Administration, Department of Energy

11 10 The U.S. long-term low-price ‘natural gas advantage’ is stimulating investment in gas-intensive heavy industry … Source: Wall Street Journal; BMO Economics

12 11 … and displacing coal in power generation Source: Wall Street Journal; BMO Economics

13 12 Crude oil production has risen very quickly in Western Canada and North Dakota, faster than pipeline capacity Source: Energy Information Administration, Department of Energy; NEB

14 13 WTI to average in the $90-$100 range, balancing a fine line between Mideast supply risk and global demand risk Source: Wall Street Journal; BMO Economics Pipeline & refinery expansions should narrow the Brent-WTI spread and the double discount on Western Canada oil

15 14 U.S. economic growth is being constrained by government deleveraging & fiscal uncertainties Source: Department of Finance, Canada; OMB; BMO Economics

16 15 U.S. household deleveraging is well advanced; high household debt in Canada is restraining consumers Source: Bank of Canada; Statistics Canada; Federal Reserve; Dept. of Commerce

17 16 Net household worth is being bolstered by rising equity and home prices Source: Statistics Canada; U.S. Dept. of Commerce; BMO Economics

18 17 U.S. home equity buffer widening as prices climb; Canadian buffer substantial and fairly stable over time Source: Bank of Canada; Statistics Canada; Federal Reserve; Dept. of Commerce

19 18 U.S. employment is gaining momentum; jobless rate should be close to 6.5% by year-end 2014 Source: Statistics Canada; U.S. Dept. of Labor; BMO Economics

20 19 Canadian employment surpassed its pre-recession peak two years ago; U.S. still a ways to go Source: Statistics Canada; U.S. Dept. of Labor; BMO Economics

21 20 It may look like Canadian house prices are in bubble territory … Source: National Association of Realtors: Canadian Real Estate Association

22 21 … yet housing markets are balanced in most regions, except in British Columbia where sales/listings is 30% below its long-term average Source: Statistics Canada; U.S. Dept. of Labor; BMO Economics

23 22 Canada’s national house prices are not in bubble territory; running 7% above long-term trend; mild correction in 2013 Source: CREA MLS; BMO Economics

24 23 Defaults are a driver of major price corrections; Canadian delinquencies are remarkably low, even in times of severe economic stress Source: Canadian Bankers Association; Mortgage Bankers Association Negligible sub-prime; no ‘exotic’ mortgages

25 24 Canadian housing starts are correcting from heated 2-year pace; U.S. recovery now gaining steam Source: CMHC; Dept. of Commerce; BMO Economics

26 25 U.S. residential construction near record low share of economy; plenty of room as a growth driver Source: Statistics Canada; Bureau of Economic Analysis; BMO Economics

27 26 Auto sales at or above normal run-rate in Canada; U.S. sales recovering sharply – delayed replacement cycle Source: Autodata Corporation; Statistics Canada; BMO Economics

28 27 Strengthening demand for autos and household furnishings and appliances is boosting manufacturing; robust new orders Source: Institute for Supply Management --Chicago

29 28 U.S. corporate finances are in very good shape; profit ratio near record high; plenty of cash on hand Source: Bureau of Economic Analysis

30 29 Canada’s corporate finances are also in very good shape; buoyant returns, relatively low debt … Source: Statistics Canada; BMO Economics

31 30 … and ample liquidity reduce business susceptibility to external shocks Source: Statistics Canada

32 31 Investment in machinery has led the overall economy, although firms have geared down in the face of global risks Source: Statistics Canada; Bureau of Economic Analysis; BMO Economics

33 32 U.S. office vacancies easing down from recession peak; cautious development in Canada kept vacancies relatively low during the recession Source: CBRE

34 33 Weaker oil sands engineering to hold back non-res. capex in Canada; U.S. on gradual recovery path Source: Statistics Canada; Bureau of Economic Analysis; BMO Economics

35 34 Economic growth to accelerate by 2013:H2; stronger performance in 2014 Source: Statistics Canada; Bureau of Economic Analysis; BMO Economics

36 35 Core inflation is well behaved, at or below the 2% longer-term target Source: Statistics Canada; Bureau of Labor Statistics; BMO Economics

37 36 Given below-target inflation and slow growth, BoC likely on hold until mid-2014; Fed not until mid-2015 Source: Bank of Canada; Federal Reserve Board; BMO Economics

38 37 Long-term yields won’t get back to ‘normal’ until late 2016 Source: Bank of Canada; Federal Reserve Board; BMO Economics

39 38 The loonie is expected to gain further against the dollar until mid 2015, and subsequently ease as the Fed raises rates Source: Bank of Canada; BMO Economics Absent global imbalances – equilibrium loonie around US 90 cents

40 39 Key risks: What could go wrong to derail recovery?  Euro crisis spins out of control, causing major disruptions in interbank, other financial markets, and trade/capital flows  Still lots that can go wrong  Washington political stalemate weakens confidence  Diminishing risk; they’re talking to each other  Mideast/North Africa political stress sharply raises oil prices  Iran, Syria, Iraq  Still-high risks in Libya and Egypt  Rising terrorism in Nigeria and other parts of North Africa


Download ppt "Economics Department 0 Economic and Financial Market Prospects & Risks Earl Sweet Economic Research BMO Harrisbank Canada-U.S. Business Council March 13,"

Similar presentations


Ads by Google