Volatility + Uncertainty ≠ Stronger Global Growth Aron Gampel Vice-President & Deputy Chief Economist Scotiabank Economics October 21, 2015

2 annual % change Source: IMF, Scotiabank Economics. Real GDP Before And After TGR – Diverging Global Growth Trends Average (4.5%) Average (4.0%) forecast (3.2%) Forecasts at September 30, 2015

3 Significant Headwinds To Stronger Global Growth Persist ‘Insufficient Aggregate Demand Reinforced By Structural And Cyclical Factors’ Deleveraging and austerity Structural economic adjustments Financial sector oversight Low inflation and deflation Geopolitical risks Financial market volatility and risk aversion

4 Stock Markets And The Economy Go Hand In Hand On The Upside…

5 … And On The Downside

6 Chronic Underperformance Around the World Persists Advanced Countries Source: Bloomberg, Scotiabank Economics. Emerging Market Countries real GDP, annual % change real GDP, annual % change Forecasts at September 30, 2015

7 Oh No Canada !!!

8 Source: Bloomberg, U.S. Energy Information Administration. Supply/Demand Fundamentals WTI Oil & Canadian Dollar WTI US dollars per barrel y/y % change Canadian Dollar US cents Global Oil Demand Global Oil Supply Oil Is On A Slippery Slope

9 World Trade Is Still Slow Source: CPB Netherlands Bureau For Economic Policy Analysis, Scotiabank Economics. All Regions Need A Boost y/y % change Advanced Economies Little Traction In World Trade y/y % change World Trade Volumes Emerging Economies

10 Source: U.S. Census Bureau, CPB Netherlands Bureau For Economic Policy Analysis, Scotiabank Economics. Weak Orders Internationally Restrain Industrial Activity U.S. Orders – Still Relatively Soft Durable Goods Orders Excluding Aircrafts & Defense y/y % change Awaiting More Global Orders 6 month annualized % change index Global New Orders (LHS) Global Industrial Production (RHS) * six month trend

11 The Pump Is Being Primed For Stronger Global Growth … Low interest rates Low oil prices Improving U.S. growth Currency realignments Incremental fiscal stimulus

12 Slip Sliding Away !!!

13 September, October, December, January, March, ….

14 The Loonie Has Lost Considerable Altitude …

15 The U.S. Economy Is Playing Catch-Up Index 2004Q1=100 U.S. Employment Consumer Spending Canada Index 2004Q1=100 U.S. Canada Source: Statistics Canada, BLS, U.S.. BEA, Scotiabank Economics. forecast Forecasts at September 30, 2015

16 Motor Vehicle Sales U.S. Canada forecast Source: CMHC, Statistics Canada, U.S. Census Bureau, U.S. BEA, Scotiabank Economics. index 2004=100 U.S. Canada Housing Starts forecast index 2004=100 Pent-up Demand Should Continue To Lift U.S. Spending Forecasts at September 30, 2015

17 Which Expert Advice Would You Choose ???

18 Infrastructure Is The Stimulus Du-Jour

19 Population (millions) Per Capita GDP* Motor vehicles per 1000 people Number of Airports Health Care Expenditure % of GDP Services Share % of GDP India1,2761, China1,3687, Brazil20311, , Canada3550, , United States 32153, , *Market exchange rate, USD. Source: IMF WEO October 2015 (estimates), Ward’s Automotive Reports, World Bank, CIA World Factbook. Stronger, Longer-Term Growth Dynamics In Emerging Markets

20 Source: Statistics Canada, Scotiabank Economics. Data plotted through August Canadian Non-Energy Export Volumes y/y % change Real GDP United States Canada y/y % change forecast Source: Statistics Canada, U.S. BEA, Scotiabank Economics. Data plotted through 2015Q2. Forecasts as at September 30, Canada Should Benefit From A Strengthening U.S. Recovery

21 Shifting Regional Growth Performance In Canada real GDP, annual % change Source: Statistics Canada, Scotiabank Economics. Forecasts at September 30, 2015

22 Canadian Disposable Income annual % change forecast Moderate Employment And Wage Gains In Canada Canadian Employment average monthly job gain, 000s Source: Statistics Canada, Government of Canada, Scotiabank Economics.

23 High Canadian Household Debt, But Still Manageable Canadian Employment average monthly job gain, 000s Source: Statistics Canada, Government of Canada, Scotiabank Economics. * Reflects Statistics Canada adjustment methodology for comparability. Source: Statistics Canada, U.S. Federal Reserve, Scotiabank Economics. Household Debt Burden Canada*: 147% United States: 139% household credit liabilities as % of disposable income Canada: 165%

24 Existing Home Sales Canada’s Resilient Housing Market 000s of units, annualized Source: CREA, Scotiabank Economics. 10-year average Existing Home Sales 2015ytd, y/y % change

25 Moderate House Price Gains In Most Major Centres Existing Home Prices 2015ytd, y/y % change CANADA (ex. Toronto & Vancouver) Existing Home Sales 000s of units, annualized Source: CREA, Scotiabank Economics. 10-year average

26 Low Borrowing Costs Maintaining Affordability *Based on average MLS price, 5% downpayment, 25-year amortization, and average of prime & 5-year posted rate. Source: Statistics Canada, Scotiabank Economics. Housing Affordability average = 0.37 ratio of mortgage payments to disposable income per worker* Source: Bank of Canada, Scotiabank Economics. Interest Rates % Prime Lending Rate 5-year Fixed Mortgage Rate

27 Housing Starts Single-detached Builders Building Up % share of total Source: CMHC, Scotiabank Economics. Data plotted through Apartments Semi-detached & Row Housing Starts 10-year average 000s of units

28 Canadian Home Renovations & Investment Residential Investment Source: Statistics Canada, Scotiabank Economics. 2000Q1=100, constant dollars Renovations New Construction Home Sales Home Renovation Expenditures annual % change, constant dollars average: 9.1% average: 2.9%

29 Strong Home Sales Drive Renovation Spending Source: Statistics Canada, Scotiabank Economics. Home Sales & Renovation Spending 000s of units 2007$ bns Home Sales (LHS) Renovations Home Ownership & Renovation Spending per household, constant dollars % Renovation Spending (LHS) Home Ownership (RHS)

30 Source: Scotiabank Economics, Bloomberg. Global Forecasts Forecasts at September 30, 2015

31 Disclaimer TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents.