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Global Forecast Update September Scotiabank

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Global Forecast Update September Scotiabank Powered By Docstoc
					                                                 Featuring Our 2014 Forecast
Global Economic Research                                                                              November 1, 2012



                   Global Forecast Update
Still Stuck In The Slow Lane Of Global Growth, For Now
Output growth around the world is on track to register an average gain of
                                                                                                   Index
3.1% in 2012, down from the 3.9% increase in 2011 and more than
2 percentage points below the 5.3% increase recorded in the first year of the          Overview                        1-2
recovery in 2010. The softer performance continues to reflect the recession in
the euro zone, business caution in the United States, and the greater-than-            Forecasts
anticipated slowdown in the large emerging economies that were sideswiped                International                 3-4
by the reduction in international trade as well as prior restraint initiatives           Commodities                     4
aimed at moderating domestic credit growth and inflation.                                North America                   5
                                                                                         Provincial                      6
Another year of sub-par growth is on tap in 2013, reflecting the ongoing
                                                                                         Financial Markets             7-8
balance sheet consolidation underway in most developed countries, and the
continuing unwinding of imbalances in many emerging nations.
Nevertheless, policymakers in virtually every region of the world — in                            World GDP
Europe, the United States, Japan, China, India and Brazil, for example
— are implementing further rounds of monetary and/or fiscal stimulus     6                                   Scotiabank forecast
                                                                                    annual % change
that should keep both short- and long-term borrowing costs at low and
pro-growth levels, thereby enabling the global economy to regain some    5
traction and post a slightly faster advance of 3.3%. Even with some                   Average:
                                                                                      1980-
lessening in the degree of austerity in many European countries,         4            2011
temporary measures in the United States to avoid the 'fiscal cliff', and
some renewed stimulus in many emerging nations, it will likely be the    3
second half of the year before most regions will be able to regain
                                                                         2
sufficient economic traction.
                                                                               1
Recent data suggest that the moderation in the global economy
appears to have slowed, though the risks to the outlook remain on the
                                                                               0
downside.
                                                                               -1
The U.S. economy has regained some momentum, posting an                         00   02    04     06   08   10   12 14
annualized 2.0% increase in real GDP in the July-September period
after slumping to an annualized 1.3% gain in Q2. U.S. consumers                 Source: IMF, Scotiabank Economics.
appear more confident now that policymakers in both the euro zone
and at home have taken additional steps to relieve economic strains and reduce instability, particularly with the
Fed committing to keep borrowing costs very low for a very long time. Car and home sales have strengthened,
leading to increased auto production and residential construction. Hurricane Sandy will have a significant but
temporary negative impact on the densely-populated northeastern states. However, replacement, rebuilding
and reinvestment activity will ramp up and extend through the first half of next year.

Nevertheless, maintaining the recent improvement in U.S. output growth will prove challenging. Businesses
have become much more cautious about the economic outlook. The sharp and sustained weakness in U.S.
durable goods orders in recent months not only reflects the sluggishness of global growth, but more
fundamentally, the lingering uncertainties over government spending cuts and the tax and regulatory
environment in the new year and beyond. With profitability being squeezed, many large U.S. firms are
rationalizing their U.S. and worldwide operations, cutting back on production, hiring, as well as longer-term
investments.

In Europe, the United Kingdom emerged from its double-dip recession in the third quarter. However, some of
the 'Olympic' glow will likely wear off unless domestic demand can maintain the increased momentum at a time
when exports are still constrained by the weakness across the channel. Purchasing managers' reports
throughout the continent are still generally weak, reflecting the continuing compression of regional demand.
Business confidence and earnings are being pressured, with cutbacks in output and investments, and plant
closures contributing to the persistent upward climb in jobless rates. In many of the hardest-hit countries such
as Spain, credit taps continue to tighten as financial institutions recapitalize weakened balance sheets and

        Global Forecast Update is available on: www.scotiabank.com, Bloomberg at SCOE and Reuters at SM1C
Global Economic Research                                                                                     November 1, 2012

                                                                                                Global Forecast Update

comply with stricter regulatory oversight. Of increased concern, however, are the repercussions from reduced regional
demand and much slower-than-expected activity around the world, especially on the larger economies of the region.
Activity in France has lost considerable momentum, with eroding cost competitiveness contributing to the sharp
moderation in output and cutbacks in employment. There also has been a discernible slowing in industrial output and
exports in Germany, and more recently, a rise in unemployment.

Japan's reconstruction-led revival has powered down, leaving output on a very modest growth trajectory. A persistently
strong yen continues to restrain competitiveness and production, while an aging population prefers to save rather than
spend. The simmering dispute with China over the ownership rights to islands in the East China Sea has weakened both
the sales and assembly of Japanese brands in China, further aggravating domestic supply chains. Political gridlock
remains an impediment to more pro-growth initiatives, though the Bank of Japan, like its American and European
counterparts, is pursuing more non-conventional monetary accommodation to encourage spending and risk-taking.

The pace of economic growth in China appears to be gradually reviving, with another dose of monetary and fiscal
stimulus coinciding with new political leadership and a renewed strengthening of the yuan to help support the transition to
a more consumer-led expansion. Industrial activity had slowed during the summer, as a number of key sectors focused on
reducing excess inventories. There are also signs that renewed public efforts to encourage consumer spending on autos
and housing is resulting in increased sales and borrowing. Output growth in China is expected to move back towards the
top end of a 7½-8% annual growth range in 2013. Other Pacific Rim countries that increasingly depend upon China for a
larger share of their performance have been experiencing slower but steady growth, though increasing industrial activity
and exports in South Korea, Thailand, and Taiwan point to a renewed pickup in their respective economies.

Additional efforts to kick-start activity in India and Brazil have yet to generate significant momentum, though government-
sponsored infrastructure projects will provide some near-term boost to growth. Other Latin American economies will
continue to rely on resource development to support a broadening in domestic activity. Mexico remains a relative
outperformer, with its strong competitive position and large foreign investments helping to bolster its manufacturing and
export capabilities.

Canadian real GDP is likely to average just about 2% this year and next, down about half a percentage point from last
year’s 2.6%, and roughly in line with U.S. developments. The volatile and slower global economic environment has
resulted in a sharp reduction in foreign earnings attributable to the combination of weaker trade volumes, lower
commodity prices, and the dampening impact of a stronger currency, though oil-related revenues from ramped-up
production remain historically high. At the same time, the Canadian economy is undergoing fiscal drag as the federal and
most provincial governments move to restore balanced budgets largely through public sector expenditure restraint.
Business investment has gravitated to a slower growth trend with profits being pressured. Softer hiring is contributing to a
more moderate pace of consumer spending and household borrowing. Housing activity has held up reasonably well in
many regions where economic and market conditions remain quite buoyant, though the larger markets in Vancouver and
B.C.’s lower Mainland, as well as Toronto, are correcting to the downside.

Although Canadian output growth has slowed, it masks the above-trend performances in the resource-rich regions where
massive developments are underpinning comparatively stronger job and wage gains, retail spending, housing market
conditions, and publicly-funded infrastructure improvements. Even in central Canada where export-sensitive
manufacturers are continuing to be squeezed, ongoing gains in the large service sectors are providing a platform for jobs
and spending.

An Even Further Look Ahead — Developments shaping the outlook for 2014 suggest a renewed acceleration in global
growth to around 3.8%. The emerging economies, and China and Mexico in particular, are better positioned to generate
stronger activity based on much more supportive household balance sheets and demographic profiles, and in some
cases, respond to the stimulus being introduced. The U.S. economy should continue to gain momentum from increased
spending associated with improving household finances and cash-rich businesses which have delayed major investments
— both supported by continuing ultra-low short-term borrowing costs. Reduced unit labour costs along with a weaker U.S.
dollar should enhance the competitiveness of American producers and bolster exports as well. Canada will continue to
piggyback on the U.S. revival and the anticipated buoyancy in commodity prices. Europe should slowly begin to turn the
corner, assisted by ongoing central bank support and the structural adjustments underway. In a number of countries,
multi-year restructuring is beginning to put primary balances into surplus — in Italy and Greece, for example — that will
allow for increased fiscal flexibility, while domestic competitiveness is being improved by the compression in wages and
costs, and an increased focus on productivity. The improving trend in global economic activity will be accompanied by
strengthening credit demand and increasing inflation expectations that reinforce a renewed upward tilt in longer-term
borrowing costs.


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Global Economic Research                                                                                  November 1, 2012

                                                                                         Global Forecast Update


 International                               2000-11     2012f    2013f     2014f    Forecast
                                                                                        Changes
 Re al GDP                                              (annual % change)
                                                                                    International
  World (based on purchasing power parity)       3.7       3.1       3.3      3.8
                                                                                       Data received over recent weeks
  Canada                                         2.2       2.1       1.8      2.3        have prompted us to make a
  United States                                  1.8       2.1       1.9      2.5        minor revision to our euro area
  Mexico                                         2.2       3.9       3.6      4.0        growth forecast for 2012, to -0.6%
                                                                                         from -0.7%. Although survey
  United Kingdom                                 1.9       0.0       1.4      1.6        indicators continue to portray
  Euro zone                                      1.4      -0.6       0.1      1.0        economic weakness, a
   Germany                                       1.4       0.7       0.9      1.3        deterioration in the real economy
   France                                        1.4       0.0       0.4      1.1        of the magnitude earlier
                                                                                         anticipated has not materialized.
   Italy                                         0.7      -2.3      -0.7      0.7
                                                                                         Nevertheless, serious downside
   Spain                                         1.9      -1.4      -1.7      0.4        risks remain in relation to the still
   Greece                                        1.6      -6.5      -3.7     -0.8        unresolved euro crisis and
   Portugal                                      0.7      -3.6      -2.2      0.5        lacklustre progress on the region-
   Ireland                                       3.3       0.0       0.9      2.0        wide banking union and fiscal
  Russia                                         5.3       3.7       3.7      3.9        pact. For 2013, we have lowered
                                                                                         the growth projection (to +0.1%
  China                                          9.4       7.7       8.0      8.3        from +0.2%), as the prospect of a
  India                                          7.3       5.5       6.0      6.5        meaningful recovery appears even
  Japan                                          0.8       2.2       1.0      1.2        further off amid the protracted
  South Korea                                    4.5       2.3       3.1      3.6        crisis environment which is
  Indonesia                                      5.3       6.0       6.3      6.5        increasingly affecting the global
                                                                                         economy, including key emerging
  Australia                                      3.0       3.4       2.7      3.1
                                                                                         markets. Within the currency
  T hailand                                      4.0       5.5       4.0      4.2        union, national performances vary
  Brazil                                         3.6       1.7       3.8      4.0        widely, with Germany continuing
  Colombia                                       4.5       4.5       5.0      4.8        to outperform. Growth will remain
                                                                                         subdued in 2014 (around +1.0% in
  Peru                                           5.6       6.3       5.7      5.5
                                                                                         aggregate), as virtually every
  Chile                                          4.8       5.2       5.0      4.8        member state advances at a sub-
                                                                                         trend pace even once a recovery
 Consum e r Price s                                    (y/y % change, year-end)          begins to take hold.
  Canada                                         2.1       1.4       2.2      2.2      We have revised higher our
  United States                                  2.5       2.0       2.3      2.2        growth profile for the U.K. in 2012-
  Mexico                                         4.8       4.4       4.0      4.0        13, based on a stronger-than-
                                                                                         expected performance in the
  United Kingdom                                 2.3       2.4       3.0      2.2        second and third quarters, which
  Euro zone                                      2.1       2.5       1.8      1.7        will carry over into next year. We
   Germany                                       1.7       2.1       2.2      2.0        now foresee flat growth in 2012, to
   France                                        1.9       1.9       1.8      1.7        be followed by expansions of
   Italy                                         2.4       2.6       2.1      1.6        1.4% and 1.6% in 2013 and 2014,
                                                                                         respectively. Both the European
   Spain                                         2.9       3.5       1.5      1.9
                                                                                         Central Bank and the Bank of
   Greece                                        3.3       0.8       0.2      0.6        England are expected to leave
   Portugal                                      2.6       2.6       0.8      1.5        benchmark interest rates at
   Ireland                                       2.2       1.8       1.2      2.0        current levels through 2014.
  Russia                                        12.2       6.4       6.5      6.7
                                                                                       China’s economy is on the verge
  China                                          2.4       2.4       3.4      4.0        of a gradual recovery despite the
  India                                          6.6       8.3       7.0      6.1        fact that the nation’s real GDP
  Japan                                         -0.3       0.0       0.3      0.6        grew by only 7.4% y/y in the third
                                                                                         quarter of 2012. On a quarter-over-
  South Korea                                    3.2       2.4       2.8      3.0
                                                                                         quarter basis, China’s growth pace
  Indonesia                                      8.3       5.2       5.5      6.0        quickened to 2.2% in the July-
  Australia                                      3.1       2.5       2.8      3.0        September period, following a
  T hailand                                      2.7       3.7       3.3      3.4        2.0% advancement in Q2. This
                                                                                         trend should translate into a slight
  Brazil                                         6.6       5.0       5.5      5.5
                                                                                         acceleration in the year-over-year
  Colombia                                       5.6       3.3       3.0      3.5        growth rate in the final quarter of
  Peru                                           2.6       3.3       3.0      3.0        2012 as recent supportive
  Chile                                          3.5       2.2       3.1      3.0        monetary and fiscal actions filter ...

                                                                                         … continued on the next page




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Global Economic Research                                                                                                November 1, 2012

                                                                                                       Global Forecast Update


 International                                   2000-11         2012f        2013f      2014f     Forecast
                                                                                                      Changes
 Curre nt Account Balance                                              (% of GDP)
     Canada                                             0.4         -3.9        -3.7       -3.0        … continued from previous page
     United States                                     -4.4         -3.1        -3.1       -3.1   International
     Mexico                                            -1.2         -0.8        -1.3       -1.7
                                                                                                       … through the economy. We
     United Kingdom                                    -2.1         -3.2        -2.3       -1.8        expect Chinese real GDP to
     Euro zone                                         -0.2          0.3         0.4        0.5        increase by 7.7% this year,
      Germany                                           3.9          5.6         5.3        5.3        followed by a modest pickup in
      France                                           -0.2         -2.2        -1.9       -1.6        2013-14.
      Italy                                            -1.4         -1.9        -1.4       -1.1      We have revised Thailand’s 2012
      Spain                                            -5.7         -2.1        -1.0       -0.7        growth forecast up to 5.5% as
      Greece                                           -8.8         -5.9        -4.1       -3.1        strong momentum in consumption
      Portugal                                         -9.6         -2.1        -1.7       -1.2        and investment is counterbalancing
      Ireland                                          -1.7          1.5         1.6        1.4        the adverse economic impact of
     Russia                                             8.6          5.0         4.2        2.7        weaker global demand for Thai
     China                                              4.7          2.6         2.2        1.9        exports. Government fiscal stimulus
                                                                                                       measures, increasing household
     India                                             -1.0         -4.0        -3.7       -3.1
                                                                                                       incomes, supportive labour market
     Japan                                              3.2          1.3         1.5        1.5        conditions, and an accommodative
     South Korea                                        2.3          2.2         2.0        2.1        monetary policy stance bode well
     Indonesia                                          2.1         -1.9        -1.0       -0.7        for the domestic economic outlook.
     Australia                                         -4.3         -2.6        -2.8       -2.7
                                                                                                     Despite repeated attempts by the
     T hailand                                          3.2          0.4         0.9        1.2        Brazilian authorities to stimulate the
     Brazil                                            -1.0         -3.2        -3.0       -3.0        economy, the recovery remains
     Colombia                                          -1.9         -4.1        -4.2       -4.0        weak. Following a 25 basis point
     Peru                                              -1.0         -2.9        -3.4       -3.0        (bp) cut to the reference rate in
     Chile                                              0.6         -3.3        -4.0       -3.8        early October, we believe that the
                                                                                                       central bank’s easing cycle has
                                                                                                       come to an end; the policy rate has
 Commodities                                                                                           been lowered by a total of 525 bps
                                                                                                       in the past 14 months.
                                                                    (annual average)
 WT I Oil (US$/bbl)                                      57           95         98        100    Commodities
 Brent Oil (US$/bbl)                                     58         112         112        112       After a strong rally in August and
 Nymex Natural Gas (US$/mmbtu)                         5.67         2.80       3.25       3.75         September, industrial commodity
                                                                                                       prices softened in late October
 Copper (US$/lb)                                       2.10         3.62       3.58       3.35         alongside another bout of concern
 Zinc (US$/lb)                                         0.77         0.88       1.02       1.20         over slow world growth.
 Nickel (US$/lb)                                       7.62         7.90       8.10       8.00         Commodity markets also appear
 Gold, London PM Fix (US$/oz)                           668        1,690      1,800      1,700         to be awaiting the outcome of the
 Pulp (US$/tonne)                                       718         868         875        950         U.S. Presidential election and a
 Newsprint (US$/tonne)                                  581         640         660        675         once in a decade leadership
                                                                                                       change in China. Hurricane Sandy
 Lumber (US$/mfbm)                                      272         285         315        350
                                                                                                       only mildly dampened oil prices,
                                                                                                       despite the disruption to activity.
                Global Growth                                 Commodity Price Trends                   Brent remains around US$108-
                                                                                                       109 and WTI oil at US$86 per
      Real GDP,                                 900
      annual average % change                          Index:2002Q1=100                                barrel. Damage to U.S. refineries
10
                                                800                                                    appears to be limited (excepting
                                                                                                       Phillips 66’ Bayway facility, which
 8                                              700                Nickel                              normally supplies gasoline to the
                                                                                        Copper
                                 2011e                                                                 New York City area).
                                                600                           WTI Oil
                                                                                                  
 6                               2012f
                                                                                                       International oil prices are
                                 2013f
                                                500                                                    expected to remain historically
 4                                                                                                     high in 2013-14, underpinned by
                                                         Natural
                                                400      Gas                                           ongoing geopolitical supply risks in
 2                                              300                                                    the Middle East. However, demand
                                                                                                       growth will be slow and the ‘call’ on
 0                                              200                                                    OPEC oil may plateau, holding
                                                                                                       prices near recent levels.
                                                100
-2                                                                     Gold
       China    Canada    U.S.      Euro-         0
                                    zone              02 03 04 05 06 07 08 09 10 11 12
     Source: Scotiabank Economics. Bloomberg,
     BEA, Statistics Canada, Eurostat.                Source: Bloomberg, Scotiabank Economics.


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Global Economic Research                                                                             November 1, 2012

                                                                                    Global Forecast Update


 North America                          2000-11    2012f     2013f    2014f     Forecast
                                                                                   Changes
 Canada                                      (annual % change)
                                                                               Canada & United States
 Real GDP                                   2.2       2.1      1.8      2.3
  Consumer Spending                         3.1       1.6      1.9      2.3       We have raised our 2012 forecast
                                                                                    for Canadian real GDP growth 0.2
  Residential Investment                    4.0       5.8     -1.1     -2.8
                                                                                    percentage points to 2.1%,
  Business Investment                       3.6       5.8      6.5      6.4
                                                                                    primarily reflecting recent
  Government                                3.2      -1.1     -0.3     -0.2         historical revisions. Our forecast
  Exports                                   0.6       2.9      4.0      5.9         for 2013 output growth is
  Imports                                   3.5       2.4      3.5      4.4         unchanged at 1.8%. Recent
 Nominal GDP                                4.8      3.2       3.3      4.2         indicators continue to point to a
 GDP Deflator                               2.6      1.1       1.5      1.9
                                                                                    moderate expansion, with overall
                                                                                    momentum restrained by a
 Consumer Price Index                       2.1      1.6       1.9      2.2
                                                                                    slowing housing market, modest
   Core CPI                                 1.8      1.8       1.8      2.0
                                                                                    consumer spending gains, more
 Pre-T ax Corporate Profits                 6.3      0.0       3.0      7.0         cautious business investment
 Employment                                 1.5      1.1       1.1      1.4         plans, ongoing fiscal restraint and
   thousands of jobs                        242      188       194      239         a challenging export environment.
 Unemployment Rate (%)                      7.1      7.3       7.1      6.9
                                                                                  Our outlook for U.S. growth in
 Current Account Balance (C$ bn.)           1.5     -71.0    -69.0    -58.0         2012-13 is unchanged, with real
 Merchandise T rade Balance (C$ bn.)       41.0     -10.6     -7.8      4.5         GDP expected to advance 2.1%
 Federal Budget Balance (C$ bn.)           -3.3     -21.0    -13.0     -5.0         this year and 1.9% next.
  per cent of GDP                          -0.1      -1.2     -0.7     -0.3         Consumer and housing demand
                                                                                    are showing signs of
 Housing Starts (thousands)                 200      215       180      175         improvement, but uncertainty
 Motor Vehicle Sales (thousands)          1,588    1,680     1,690    1,695         surrounding the year-end ‘fiscal
 Motor Vehicle Production (thousands)     2,421    2,500     2,625    2,690         cliff’ is weighing on business
 Industrial Production                       0.3      1.5       2.4      3.3        investment and hiring, and weak
                                                                                    global growth is restraining
 Unite d State s                                                                    exports. Lost output caused by the
                                                                                    massive hurricane that struck the
 Real GDP                                   1.8       2.1      1.9      2.5         U.S. Northeast in late-October is
  Consumer Spending                         2.2       1.9      2.1      2.4         expected to reduce Q4 growth,
  Residential Investment                   -4.6      11.8     14.4     16.5         though reconstruction should
  Business Investment                       1.2       7.2      2.3      4.6         provide a lift to activity late in the
  Government                                1.7      -1.3     -0.9     -1.0         quarter and into next year.
  Exports                                   4.1       3.2      3.5      7.4       Following a narrower-than-
  Imports                                   3.5       2.9      3.5      6.3         expected U.S. federal deficit for
 Nominal GDP                                4.1       4.0      3.8      4.3         fiscal 2012, substantial near-term
 GDP Deflator                               2.2       1.9      1.9      1.8         uncertainty continues to surround
                                                                                    the post-election negotiations on
 Consumer Price Index                       2.5       2.1      2.3      2.2
                                                                                    the fiscal cliff measures. In
   Core CPI                                 2.0       2.1      1.9      2.0
                                                                                    Canada, the final federal deficit for
 Pre-T ax Corporate Profits                 6.5       4.5      5.0      6.5         fiscal 2011-12 was somewhat
 Employment                                 0.2       1.4      1.3      1.8         wider than forecast, and muted
   millions of jobs                        0.20      1.83     1.73     2.44         price increases have dampened
 Unemployment Rate (%)                      6.2       8.1      7.9      7.4         nominal GDP growth this year, but
 Current Account Balance (US$ bn.)         -553      -485     -509     -520
                                                                                    Ottawa remains committed to
                                                                                    balanced books by mid-decade.
 Merchandise T rade Balance (US$ bn.)      -642      -749     -795     -841
 Federal Budget Balance (US$ bn.)          -481    -1,089     -935     -790    Mexico
  per cent of GDP                           -3.4      -6.9     -5.7     -4.6      As a result of higher price
 Housing Starts (millions)                 1.38      0.77     0.90     1.10         pressures in Mexico (headline
 Motor Vehicle Sales (millions)            15.2      14.3     15.0     15.5         inflation reached 4.8% y/y in
 Motor Vehicle Production (millions)       10.4      10.1     10.5     10.9         September), we are revising our
 Industrial Production                      0.5       3.7      2.6      3.4
                                                                                    year-end inflation forecast to 4.4%.
                                                                                    The central bank left the reference
                                                                                    rate unchanged at 4.50% at the
 Me x ico                                                                           last board meeting in October;
 Real GDP                                   2.2       3.9      3.6      4.0         however, the official rhetoric was
 Consumer Price Index (year-end)            4.8       4.4      4.0      4.0         more hawkish, opening the door
 Unemployment Rate (%)                      3.8       4.8      4.4      4.1         for possible interest rate hikes.
 Current Account Balance (US$ bn.)        -10.3     -11.0    -22.0    -23.9         Economic activity remains solid,
                                                                                    with a slight moderation expected
 Merchandise T rade Balance (US$ bn.)      -7.5      -3.0     -9.0    -14.9
                                                                                    by the end of the year.
 Industrial Production                      1.6       3.8      3.6      3.7




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Global Economic Research                                                                                                                            November 1, 2012

                                                                                                                                    Global Forecast Update


Provincial
 Provincial                2000-11 2012f 2013f 2014f
                          2000-11 2012f 2013f 2014f                  2000-11
                                                                    2000-11             2012f 2013f 2014f
                                                                                       2012f 2013f 2014f                        Forecast
                                                                                                                                   Changes
                                         Real GDP
                                         Real GDP                       Budget Balances*, FY March 31
                                                                       Budget Balances*, FY March 31
                                      (annual % change)
                                     (annual % change)                                  ($millions)
                                                                                        ($ millions)                           Provinces
                                                                                                                                  While remaining below its 2007
Canada
Canada                         2.2        2.1     1.8         2.3           106       -26,220 -21,000 -13,000                       level, Ontario’s manufacturing
                                                                                                                                    exports are continuing their
                                                                                                                                    recovery from the 2008 recession,
  Newfoundland & Labrador
 Newfoundland & Labrador       3.3        1.2     2.3         2.2           133             776        -258             n.a.
                                                                                                                                    rising 8.3% year-to-date as of
  Prince Edward
 Prince Edward IslandIsland    1.8        1.2     1.3         1.7           -32             -79         -75             n.a.        August. The U.S. was the largest
  Nova Scotia
 Nova Scotia                   1.7        1.3     1.6         2.2            70            -248 *      -249             n.a.        contributor to this increase, but an
 New Brunswick
  New Brunswick                1.8        1.1     1.4         1.9           -77            -261 *      -357             n.a.        important contribution was also
                                                                                                                                    made by a number of non-
  Quebec
 Quebec                        1.9        1.2     1.5         2.0         -623         -3,300 -1,500                    n.a.        traditional export destinations. So
                                                                                                                                    far this year, Ontario’s exports to
  Ontario
 Ontario                       1.9        2.0     1.7         2.0       -3,374        -12,969 * -14,371                 n.a.
                                                                                                                                    Poland and Saudi Arabia have
                                                                                                                                    more than tripled, as a result of
  Manitoba
 Manitoba                      2.2        2.2     1.8         2.2          189 **         -999 * -460                   n.a.        increased aerospace and rail
  Saskatchewan
 Saskatchewan                  2.1        3.0     2.6         2.9          393             352 *      6                 n.a.        equipment orders respectively.
  Alberta
 Alberta                       2.9        3.4     3.0         3.2        3,627               0*       0                 n.a.
                                                                                                                                  In the first half of the year,
 British Columbia
  British Columbia             2.6        2.1     1.8         2.4          540          -1,840 * -1,141                 n.a.        Saskatchewan led the nation with
                                                                                                                                    8.3% annual labour income
                                                                     * Final. Other FY12 and FY13 estimates.
                                                                    *Final.Other FY12 and FY13 data: Provinces' data:
                                                                                                                                    growth driven by robust wage and
                                                                    Provinces' estimates. **FY04-FY11.
                                                                     ** FY04-FY11.                                                  employment gains. Wage
                                                                                                                                    increases were broad-based, with
                                        Employment
                                        Employment                              Unemployment Rate
                                                                                Unemployment Rate                                   the most pronounced gains in the
                                      (annual % change)                           (annual average, %)                               mining, real estate and
                                     (annual % change)                            (annual average, %)
                                                                                                                                    management sectors. As of
                                                                                                                                    September, Saskatchewan’s year-
Canada
Canada                         1.5        1.1     1.1         1.4           7.1             7.3          7.1            6.9         to-date employment growth was
                                                                                                                                    second only to Alberta’s, led by
  Newfoundland & Labrador
 Newfoundland & Labrador       0.9        1.5     1.0         1.5          15.0            12.6        12.2         11.5            business services, construction
 Prince Edward Island Island
  Prince Edward                1.5        1.0     0.7         0.9          11.3            11.2        10.9         10.7            and education.
 Nova Scotia
  Nova Scotia                  1.0        0.9     0.9         1.0           8.8             8.9         8.8          8.4          Wood product exports from B.C.
 New Brunswick
  New Brunswick                0.6        0.3     0.7         0.9           9.4             9.9         9.7          9.3            have increased 6.3% year-to-date,
                                                                                                                                    led by an increase of more than
 Quebec
  Quebec                       1.4        0.3     1.0         1.2           8.2             7.9          7.7            7.6         25% to the United States. Rising
 Ontario                       1.5        0.7     1.0         1.2           7.0             7.8          7.6            7.5         shipments to the U.S. have more
  Ontario
                                                                                                                                    than offset a decline in wood
                                                                                                                                    product exports to China and
 Manitoba
  Manitoba                     1.2        0.8     0.9         1.5           4.9             5.3          5.2            5.0         Europe associated with their
 Saskatchewan
  Saskatchewan                 0.9        1.8     1.5         1.8           5.0             4.8          4.6            4.4         economic slowdowns. Wood
 Alberta
  Alberta                      2.6        3.0     1.9         2.2           4.8             4.7          4.6            4.2         product exports to China, which
 British Columbia
  British Columbia             1.5        1.8     1.1         1.3           6.7             6.8          6.7            6.6         account for nearly 25% of total
                                                                                                                                    shipments, are expected to
                                                                                                                                    recover in 2013.
                                    Housing Starts
                                    Housing Starts                              MotorVehicle Sales
                                                                                Motor Vehicle Sales                               Upcoming provincial mid-year
                               (annual, thousands of units)
                               (annual, thousands of units)                  (annual, thousands of units)
                                                                             (annual, thousands of units)                           reports are expected to reiterate
                                                                                                                                    expenditure management plans,
                               200       215      180     175            1,588           1,680        1,690       1,695             as the Provinces work towards
Canada
Canada
                                                                                                                                    their respective fiscal repair
                                                                                                                                    targets in an uncertain economic
 Atlantic
  Atlantic                      12        12       10         10            114            123          124             124         environment.

  Quebec
 Quebec                         45        47       42         40            405            420          422             422
  Ontario
 Ontario                        73        79       61         60            603            627          630             631

  Manitoba
 Manitoba                        5         7        6          5             44             50           50              51
  Saskatchewan
 Saskatchewan                    4         9        8          7             42             54           55              55
  Alberta
 Alberta                        34        33       30         30            205            237          239             241
 British Columbia
  British Columbia              27        28       23         23            175            169          170             171




                                                                                                                                                                           6
Global Economic Research                                                                                  November 1, 2012

                                                                                           Global Forecast Update


 Quarterly Forecasts                12Q4f   13Q1f   13Q2f   13Q3f   13Q4f     14Q1f       14Q2f   14Q3f     14Q4f


 Canada
 Real GDP (q/q, ann. % change)        2.0     1.8     1.8     2.2       2.3        2.3      2.3     2.5        2.5
 Real GDP (y/y, % change)             1.7     1.7     1.7     1.9       2.0        2.1      2.3     2.3        2.4
 Consumer Prices (y/y, % change)      1.4     1.5     1.7     2.2       2.2        2.1      2.1     2.1        2.2
  Core CPI (y/y % change)             1.5     1.7     1.7     2.0       2.0        2.0      2.0     2.0        2.0
 Unite d State s
 Real GDP (q/q, ann. % change)        1.5     1.8     2.4     2.0       2.3        2.5      2.7     2.9        2.9
 Real GDP (y/y, % change)             1.7     1.6     1.9     1.9       2.1        2.3      2.4     2.6        2.8
 Consumer Prices (y/y, % change)      2.0     2.1     2.4     2.4       2.3        2.2      2.1     2.2        2.2
  Core CPI (y/y % change)             2.0     1.9     1.8     1.9       1.9        2.0      2.0     2.0        2.0



 Financial Markets

 Ce ntral Bank Rate s                                        (%, end of period)
 Am e ricas
 Bank of Canada                      1.00    1.00    1.00    1.00     1.00        1.25     1.50    1.75       2.00
 U.S. Federal Reserve                0.25    0.25    0.25    0.25     0.25        0.25     0.25    0.25       0.25
 Bank of Mexico                      4.50    4.75    5.00    5.00     5.25        5.75     6.50    6.75       7.00
 Central Bank of Brazil              7.25    7.25    8.00    8.00     8.00        8.00     8.50    9.00       9.00
 Bank of the Republic of Colombia    4.50    4.50    4.50    5.00     5.00        5.50     5.50    6.00       6.00
 Central Reserve Bank of Peru        4.25    4.25    4.25    4.25     4.25        4.25     4.50    5.00       5.00
 Central Bank of Chile               5.00    5.00    5.25    5.50     5.75        6.00     6.50    6.50       6.50
 Europe
 European Central Bank               0.75    0.75    0.75    0.75     0.75        0.75     0.75    0.75       0.75
 Bank of England                     0.50    0.50    0.50    0.50     0.50        0.50     0.50    0.50       0.50
 Swiss National Bank                 0.00    0.00    0.00    0.00     0.00        0.00     0.00    0.00       0.00
 Asia/Oce ania
 Bank of Japan                       0.10    0.10    0.10    0.10     0.10        0.10     0.10    0.10       0.10
 Reserve Bank of Australia           3.00    3.00    3.00    3.00     3.25        3.25     3.50    3.50       3.75
 People's Bank of China              5.75    5.75    5.75    5.75     5.75        6.00     6.00    6.30       6.30
 Reserve Bank of India               8.00    7.50    7.00    6.75     6.75        6.75     6.75    7.00       7.25
 Bank of Korea                       2.75    2.75    2.75    3.00     3.00        3.25     3.25    3.50       3.50
 Bank Indonesia                      5.75    5.75    5.75    6.00     6.00        6.25     6.50    6.75       7.00
 Bank of T hailand                   2.75    2.75    2.75    3.00     3.00        3.25     3.25    3.50       3.50

 Canada
 3-month T -bill                     1.00    1.00    1.00    1.00     1.00        1.35     1.65    1.90       2.15
 2-year Canada                       1.00    1.05    1.25    1.45     1.70        2.25     2.40    2.60       2.75
 5-year Canada                       1.30    1.45    1.60    1.75     2.10        2.40     2.55    2.75       2.95
 10-year Canada                      1.70    1.80    1.95    2.10     2.45        2.65     2.80    3.00       3.15
 30-year Canada                      2.30    2.40    2.60    2.70     3.10        3.35     3.50    3.60       3.65
 Unite d State s
 3-month T -bill                     0.05    0.05    0.10    0.10     0.10        0.10     0.10    0.10       0.10
 2-year T reasury                    0.25    0.25    0.25    0.35     0.45        0.50     0.75    1.00       1.40
 5-year T reasury                    0.55    0.65    1.00    1.25     1.50        1.55     1.60    1.75       2.10
 10-year T reasury                   1.50    1.60    1.80    2.10     2.50        2.75     3.00    3.15       3.25
 30-year T reasury                   2.70    2.75    2.95    3.20     3.65        3.85     4.00    4.10       4.15
 Canada-U.S. Spre ads
 3-month T -bill                     0.95    0.95    0.90    0.90      0.90        1.25    1.55    1.80       2.05
 2-year                              0.75    0.80    1.00    1.10      1.25        1.75    1.65    1.60       1.35
 5-year                              0.75    0.80    0.60    0.50      0.60        0.85    0.95    1.00       0.85
 10-year                             0.20    0.20    0.15    0.00     -0.05       -0.10   -0.20   -0.15      -0.10
 30-year                            -0.40   -0.35   -0.35   -0.50     -0.55       -0.50   -0.50   -0.50      -0.50



                                                                                                                         7
Global Economic Research                                                                                                                                  November 1, 2012

                                                                                                                                      Global Forecast Update


    Financial Markets                           12Q4f         13Q1f      13Q2f             13Q3f        13Q4f         14Q1f        14Q2f         14Q3f         14Q4f


    Exchange Rate s                                                                         (end of period)
    Am e ricas
    Canadian Dollar (USDCAD)                     0.97           0.97          0.97           0.96         0.96         0.95          0.95          0.94          0.94
    Canadian Dollar (CADUSD)                     1.03           1.03          1.03           1.04         1.04         1.05          1.05          1.06          1.06
    Mexican Peso (USDMXN)                       12.81          12.93         12.84          12.96        13.19        13.22         13.11         13.18         13.31
    Brazilian Real (USDBRL)                      1.99           1.98         1.95           1.90            1.86          1.86       1.85          1.84          1.83
    Colombian Peso (USDCOP)                      1800           1810         1820           1840            1850          1860       1870         1880          1890
    Peruvian Nuevo Sol (USDPEN)                   2.61           2.62         2.58           2.58            2.55          2.55       2.55         2.54          2.52
    Chilean Peso (USDCLP)                         494            495          497            500             502           502        505           505           510

    Canadian Dollar Cross Rate s
    Euro (EURCAD)                                1.23           1.23          1.22           1.20         1.20         1.18          1.17          1.15          1.14
    U.K. Pound (GBPCAD)                          1.57           1.57          1.58           1.57         1.57         1.57          1.57          1.56          1.56
    Japanese Yen (CADJPY)                          82             85            87             89           91           93            94            95            96
    Australian Dollar (AUDCAD)                   1.01           1.02          1.02           1.02         1.02         1.02          1.02          1.02          1.02
    Mexican Peso (CADMXN)                       13.21          13.33         13.24          13.50        13.74        13.92         13.80         14.02         14.16

    Europe
    Euro (EURUSD)                                1.27           1.27          1.26           1.25           1.25          1.24        1.23         1.22          1.21
    U.K. Pound (GBPUSD)                          1.62           1.62          1.63           1.64           1.64          1.65        1.65         1.66          1.66
    Swiss Franc (USDCHF)                         0.95           0.95          0.96           0.97           0.98          0.99        1.01         1.02          1.03
    Swedish Krona (USDSEK)                       6.69           6.65          6.67           6.72           6.64          6.65        6.67         6.68          6.69
    Norwegian Krone (USDNOK)                     5.75           5.60          5.50           5.40           5.30          5.28        5.25         5.22          5.20
    Russian Ruble (USDRUB)                       32.0           32.1          32.1           32.2           32.2          33.6        34.2         34.8          32.8

    Asia/Oce ania
    Japanese Yen (USDJPY)                           80             82           84             85              87            88         89           89            90
    Australian Dollar (AUDUSD)                    1.04           1.05         1.05           1.06           1.06          1.07       1.07         1.08          1.09
    Chinese Yuan (USDCNY)                         6.25           6.25         6.20           6.15            6.10          6.09       6.07         6.06          6.04
    Indian Rupee (USDINR)                         53.5           53.2         52.9           52.6            52.3          52.1       52.0         51.9          51.8
    South Korean Won (USDKRW)                    1105           1098         1090           1083            1075          1069       1063         1056          1050
    Indonesian Rupiah (USDIDR)                   9700           9675         9650           9625            9600          9550       9500         9450          9400
    T hai Baht (USDT HB)                         30.8           30.6         30.4           30.2             30.0          29.9       29.9         29.8          29.8




                 Central Bank Rates                                     Global Inflation                                                  10-Year Yields
7                                                  10         y/y % change                                            7
     %                                                                                                                      %

6                                                   8                                                                 6
             U.S.                                                                                                                  U.S.                         Forecast
                         U.K.
5                                                   6                                     China                       5


4                                                   4                                                                 4
                                  Forecast                                                                                         Canada

3                                                   2                                                                 3

                                                          Euro zone
2                           Canada                                                        Canada                      2
                                                    0
          Euro zone
1                                                   -2                                                                1

                                                                                U.S.
0                                                                                                                     0
                                                    -4
    04 05 06 07 08 09 10 11 12 13                                                                                         04 05 06 07 08 09 10 11 12 13
                                                         07       08     09      10           11       12
     Source: Bloomberg, Scotiabank Economics.             Source: Bloomberg, Scotiabank Economics.                         Source: Bloomberg, Scotiabank Economics.



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