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

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

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

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

Real GDP (Projected Average Percentage Change) Source – Economic and Financial indicators – The Economist 5

Commodity Prices (2008/2009) 6

Commodity Prices ( ) 7

Canadian Economy 8

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

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

G7 COMPARATIVE NET DEBT-TO-GDP RATIOS CANADA’S TURNAROUND (cont.)

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

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

British Columbia Economy 14

Taxpayer Supported Debt as Per Cent of GDP and Per Capita Per Cent GDP 15

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

British Columbia Economy (cont.) Industry Outlooks Forestry Mining Energy Transportation and Warehousing Finance and Real Estate Health Care Tourism 17

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

Forecast Canada + 2.9% British Columbia + 2.4% 19

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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