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The World Economy and BC presented to Mortgage Investment Association of BC June 21, 2011 by Bernie Magnan Assistant Managing Director and Chief Economist 1
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Background Factors considered in Economic Forecast –Previously looked at United States and Canadian Economies –Some attention paid to Japan and Europe –Now need to consider other major world economies – especially European Union, BRIC countries (Brazil, Russia, India and China) –Canadian Domestic Factors –Provincial Factors 2
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Background (cont.) United States Still Biggest Economy - > $14 Trillion GDP Japan, Germany, South Korea, other Euro nations still impact world economy Increased interconnectivity of World Economies Sovereign Debt Consumer Confidence Residential and Commercial construction Commodity Prices 3
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Background (cont.) Major Recession Factors –Unregulated Lending in US Market – Especially Housing (Sub Prime, 100% Loans, ‘NINJA’ Loans, Extended Credit) –Creation of Little Understood Structured Financial Products –Lack of Financial Regulation –Overbuilt US residential housing mkt (on spec) –Sovereign debt/social support (especially in EU) –US Budget and Current Account Deficits –Repackaging of High-Risk Products –Hedge and Derivative Calls 4
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Real GDP (Projected Average Percentage Change) Source – Economic and Financial indicators – The Economist 5
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Commodity Prices (2008/2009) 6
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Commodity Prices (2010-11) 7
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Canadian Economy 8
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Positive Factors 11 Years of Budget Surpluses Budget Debt down by $90 Billion (to $458 Billion) Debt-to-GDP Lowest Among G7 Countries Strong Financial System Stable Housing Market Positive Immigration Stimulus Spending ($60 Billion Over 2.5 Years) 9
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G7 COMPARATIVE NET DEBT-TO-GDP RATIOS CANADA’S TURNAROUND - 2 ND WORST TO BEST Source: Department of Finance 6 Net Debt-to-GDP Ratio 10
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G7 COMPARATIVE NET DEBT-TO-GDP RATIOS CANADA’S TURNAROUND (cont.)
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Canadian Economy (cont.) Negative Factors Aging Demographic Labour and Skills Shortages Lack of Investment in Productivity and Innovation Canadian Dollar at Par With US $ $101 Billion Deficit Increase Over Two Years 12
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Canadian Economic Issues Impact of World Financial Liquidity Border Access –Movement of Business Professionals –New Border Transportation Charges – Truck and Rail –Increased Security Requirements Balance of Payments Impact of US Economic Recovery Commodity Pricing Federal Budget 13
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British Columbia Economy 14
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Taxpayer Supported Debt as Per Cent of GDP and Per Capita Per Cent GDP 15
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British Columbia Economy Positive Factors Low Cost of Electrical Energy 2010 Olympics Skilled Workforce Gateway to Pacific Rim Population In-migration Natural Gas Play Commodity Prices 16
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British Columbia Economy (cont.) Industry Outlooks Forestry Mining Energy Transportation and Warehousing Finance and Real Estate Health Care Tourism 17
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British Columbia Economy (cont.) Statistics Population Growth – 1.6% Employment – Flat to Small Growth Canadian Dollar Volatility - Par Gas prices - Volatile Lumber Prices - Variable Inflation – 2.7% Unemployment - 7.6% Bank Rate – 1.0% (end of year) 18
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Forecast Canada + 2.9% British Columbia + 2.4% 19
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Vancouver Region Impacts ‘Downtown’ British Columbia Commodity Prices and World Demand In-migration Regional Growth Strategy –Land Availability –Demand/Densification –Industrial/Commercial Land Requirements –Transportation
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Questions ???
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