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					Global Economics                                                                                      August 1, 2013



                   Global Forecast Update
Global Growth — Better Luck Next Year
The global economy is struggling to post stronger growth in 2013. Output
                                                                                                Index
internationally has followed a pattern of decelerating annual gains since the
first full year of the recovery in 2010 when real GDP increased by an                Overview                 1-2
average of 5.2%. Global real GDP is projected to advance by a relatively
sluggish 2.8% this year, following moderating increases in 2011 and 2012 of          Forecasts
3.9% and 3.2% respectively.                                                            International          3-4
                                                                                       Commodities              4
At roughly a 3% rate of real GDP growth, the globe’s economic performance
                                                                                       North America            5
is about a percentage point below the average advance of around 4% in the
2000-07 period that was characterized by significant economic gains in the             Provincial               6
emerging market economies, and generally solid output increases in the                 Financial Markets      7-8
advanced nations. However, it is in line with the average international
performance during the 1990s when the emerging market economies
were less robust, and the advanced nations were recovering from a           Stuck In The Slow Lane Of Global Growth
deep and long recession.                                                  6                               Scotiabank
                                                                             annual                           forecast
                                                                                 % change       Average:
This year, a renewed flare-up in the euro zone’s lingering sovereign        5                   2000-07
debt crisis is not responsible for the loss of momentum globally. The
deterioration in some of the region’s hardest hit economies appears to      4    Average:
have slowed. While public sector spending continues to contract,                 1990-99
renewed export gains are leading to an increase in industrial activity in   3
a number of these economies, notably Spain and Greece. Importantly,
confidence has stabilized with the support provided by ECB pledges,         2
leading to some uptick in consumer spending despite limited
employment gains. Tourism remains a solid performer. Nevertheless,          1
a myriad of economic, financial as well as political problems continue
to weigh against an early end to the region’s recession and massive         0
unemployment problems.
                                                                            -1
For that matter, none of the advanced economies are primarily                  90 92 94 96 98 00 02 04 06 08 10 12 14
responsible for the downgrading of economic prospects internationally.         Source: IMF, Scotiabank Economics.
The Japanese economy is regaining traction, though output gains are
still in the relatively slow lane of growth. Policymakers have introduced a number of pro-growth initiatives — fiscal
stimulus and quantitative easing — which along with a weaker yen should go a long way towards sustaining a
period of comparatively better growth and reviving even modest inflation. Improving business investment and
exports remain the key to longer-term growth prospects, since consumer spending gains are limited by aging
demographics and an impending increase in consumption taxes to help contain exceptionally high government
debt levels. The U.K. economy is also exhibiting signs of improving activity, though like Japan, prospective output
gains are likely to be contained under a 2% annual rate.
After a promising start to 2013, the U.S. economy has lost some of its drive, albeit temporarily. It has succumbed
to the drag caused by early-year tax hikes, the subsequent stepped-up spending restraint under sequestration,
as well as reduced exports abroad. This year’s anticipated U.S. real GDP advance of 1.5% will come in slightly
slower than had been expected, another advanced economy reporting a sub-2% annualized rate of growth.
However, the U.S. economy should begin to rebuild momentum with the pace of fiscal drag expected to diminish.
The private sector continues to generate around 200,000 net new jobs on a monthly basis, an important factor in
supporting income growth, and along with rising home values, confidence and spending power. There is
considerable pent-up demand in the U.S. for ‘big-ticket’ purchases of motor vehicles and homes, now that
Americans have made important progress in reducing their leverage and rebuilding their wealth. Business
investment caution will give way to increased capital expenditures to meet expanded infrastructure demands. The
United States will continue to benefit from the development of its significant shale oil and gas reserves.
Canadian output is on track to post a second consecutive year of 1.7% growth in 2013, slightly above the projected
U.S. advance after the sizeable data revisions south of the border. The weakening trend in Canadian housing


        Global Forecast Update is available on: www.scotiabank.com, Bloomberg at SCOT and Reuters at SM1C
Global Economics                                                                                                 August 1, 2013

                                                                                                Global Forecast Update

market activity is contributing to the pullback in construction, as well as a slower trend in consumer spending and job hiring. Like
the United States, fiscal retrenchment is biting, with the federal and most provincial governments in consolidation mode.
Resource-related activity has moderated, as witnessed by the pullback in production, shipments and prices primarily in the metal
markets. This largely reflects the slower pace of growth around the world, especially in the emerging market economies, as well
as the hurdles presented by domestic competitive factors, including a very strong Canadian dollar until recently. Even so, oil
market and price conditions have recently improved, resulting from infrastructure upgrades that have unclogged some of the
supply bottlenecks around the Cushing, Oklahoma hub for Canadian and U.S. crude, as well as improved fundamentals in the
United States attributable to increased driving demand and reduced imports from overseas.
Canadian producers of goods and service will continue to benefit from the recovery in U.S. demand over the forecast horizon.
A weaker Canada/U.S. exchange rate, which has gravitated lower to about US$0.97 after averaging around ‘parity’ vis-à-vis
the greenback over the past 2½ years, will provide some added bottom-line relief to domestic exporters. Nevertheless, the
performance dynamics underpinning the U.S. and Canadian economies are on different paths. Domestic-led activity will lag in
Canada because much of the pent-up demand for autos and houses built up during the recession has been exhausted, and
household debt levels are being reined in.
For the most part, responsibility for this year’s loss of global economic momentum lies with the much greater-than-expected
slowdowns in China, India, Brazil and Mexico. With the advanced economies struggling to get out of either low gear or reverse,
most of the larger emerging market Asian economies have been unable to transition quickly from export dependency to
domestically led demand. Structural, not cyclical factors are behind the weaker economic performances, with governments
increasingly pressured to expedite economic, financial, legal and regulatory reforms.
In the case of China, a stronger currency has reinforced its slowdown, though the yuan has been trading flat to the U.S. dollar
over the past two months. While Chinese authorities have introduced some short-term economic and financial measures to
prevent the deceleration in output growth from sinking below an annualized 7%, they are effectively constrained by an
overextended credit cycle for lenders and households alike. The transition to more market-oriented and domestic-led growth
through higher wages, improved social welfare, and increased financial sector oversight will take time to evolve.
The reduced demand from emerging market economies has already resulted in slower production, shipments, and lower prices
for a number of key commodities, especially minerals, adding to the already challenging conditions Canadian exporters are
confronted with. Around the world, commodity-producers already have begun to trim production to counter the reduced
demand and lower prices and prevent even larger discounting in the future. The ripple effects and consolidation have impacted
bulk shippers, manufacturers of heavy equipment, and providers of business services. While we expect that the price of crude
oil will continue to be supported by increasing demand, primarily from the large emerging market economies and the United
States, the expanding development of the globe’s conventional and shale oil and gas resources, alongside increasing motor
vehicle mileage to meet tighter environmental regulations, suggest that the global economy may be entering a period of
relatively stable crude oil prices at best, and potentially weaker prices if supply factors begin to dominate.
Global activity is expected to build momentum through the remainder of this year and into 2014. The U.S. will continue to be
the growth leader among the advanced nations. There is still considerable monetary stimulus in the economic pipeline even
after the Fed begins to 'taper' its bond purchases later this year, while federal fiscal restraint will be unwound gradually. The
record-setting U.S. stock market performance is reflective of the United States’ pro-growth outlook and its support for
international activity. Aggressive stimulative actions on the part of the Japanese government should help buoy activity in the
Asia-Pacific region, while the United Kingdom and Europe will benefit from the competitive adjustments underway, pent-up
demand, continued monetary support, and on the continent, a gradual shift away from the severe austerity measures of recent
years. Major infrastructure projects have the potential to jump-start domestic-led growth in Canada. The dollarization of
investment portfolios in most Latin American countries is expected to increase as a strengthening U.S. expansion underpins
the attractiveness of U.S. dollar-denominated holdings. The combined effect of the structural reform process underway and
improving macroeconomic conditions in the United States will support a relatively better performance for the Mexican economy
and currency in the coming months.
Even so, there are a number of hurdles that will likely continue to moderate the pace of expansion. For the time being, the BRIC
economies are adjusting to slower but more sustainable growth paths, though most of the respective governments have the
financial capabilities and robust international reserves positions to implement short-term initiatives in support of stronger
domestic activity. The combination of the renewed rise in the price of crude oil and the roughly one percentage point rise in U.S.
long-term mortgage rates, have the potential to dampen consumer and business spending — both in the United States and
abroad — if they continue to trend higher. The outlook for interest rates and foreign exchange markets has become increasingly
volatile, reflecting the unevenness of the expansion around the world, uncertainty surrounding the United States plan to wind
down unconventional stimulus measures through large-scale asset purchase programs, and heightened geopolitical risks
internationally. Nevertheless, yield curves, especially in the advanced nations, are likely to gradually steepen over time as U.S.
longer-term borrowing costs trend higher against the backdrop of a strengthening U.S. economy and greenback.


                                                                                                                                 2
Global Economics                                                                                               August 1, 2013

                                                                                         Global Forecast Update


 International                               2000-11     2012     2013f     2014f    Forecast
                                                                                        Changes
 Re al GDP                                              (annual % change)
                                                                                    International
  World (based on purchasing power parity)       3.7       3.2       2.8      3.5
                                                                                       As survey and real economic data
  Canada                                         2.2       1.7       1.7      2.3        continue to paint a picture of
  United States                                  1.9       2.8       1.5      2.6        stabilizing conditions in the euro
  Mexico                                         2.2       3.9       2.9      4.2        area (upcoming GDP data will
                                                                                         likely show that the region exited
  United Kingdom                                 1.9       0.1       1.0      1.5
                                                                                         recession in the second quarter),
  Euro zone                                      1.4      -0.5      -0.7      0.5        downside risks nonetheless
   Germany                                       1.4       0.9       0.3      1.1        abound in the form of political and
   France                                        1.4       0.0      -0.4      0.3        external uncertainties. We have
   Italy                                         0.7      -2.4      -1.9      0.0        made minor adjustments to the
   Spain                                         1.9      -1.4      -1.8     -0.3        individual country growth profiles,
   Greece                                        1.5      -6.4      -5.2     -1.8        but we continue to expect an
   Portugal                                      0.8      -3.2      -2.9     -0.4        aggregate contraction of 0.7% in
   Ireland                                       3.2       0.2       0.5      1.2
                                                                                         2013 followed by a muted
                                                                                         expansion of 0.5% in 2014.
  Russia                                         5.3       3.4       2.6      3.2
  T urkey                                        4.6       2.3       3.8      4.5      Chinese authorities will likely
                                                                                         continue their efforts to limit
  China                                          9.4       7.8       7.3      7.3
                                                                                         excessive credit growth in the
  India                                          7.4       5.1       5.5      6.0        coming months so as to promote
  Japan                                          0.8       1.9       1.7      1.7        economic rebalancing and a more
  South Korea                                    4.5       2.0       2.5      3.2        structurally sound financial
  Indonesia                                      5.3       6.2       5.9      6.0        environment. Therefore, we will
  Australia                                      3.0       3.6       2.5      3.0        likely see a substantial slowdown
  T hailand                                      4.0       6.5       4.5      4.2        in investment growth, causing
                                                                                         China’s economic expansion to
  Brazil                                         3.6       0.9       2.5      3.5        decelerate. Accordingly, we now
  Colombia                                       4.2       4.0       4.2      4.7        expect China’s output to advance
  Peru                                           5.6       6.3       5.7      6.0        by 7⅓% in 2013 and 2014,
  Chile                                          4.4       5.6       4.6      4.4        compared with 7¾% previously.
                                                                                       Shinzo Abe’s revival plan for
 Consum e r Price s                                    (y/y % change, year-end)
                                                                                         Japan is yielding results with
  Canada                                         2.1       0.9       1.6      2.0        various industry and consumer-
  United States                                  2.5       1.9       1.4      2.1        related indicators improving. We
  Mexico                                         4.8       3.6       4.0      4.0        now anticipate that the country’s
                                                                                         real GDP growth will average
  United Kingdom                                 2.3       2.7       2.4      2.4        1.7% in 2013-14 (compared with
  Euro zone                                      2.1       2.2       1.5      1.6        our earlier forecast of 1.4% and
   Germany                                       1.7       2.0       1.7      1.9        1.5% for 2013 and 2014,
   France                                        1.9       1.5       1.3      1.4        respectively). Nevertheless, for
   Italy                                         2.4       2.6       1.4      1.4        the recovery to be more than a
   Spain                                         2.9       3.0       1.7      1.2
                                                                                         short-term phenomenon, strong
                                                                                         political will is required to deliver
   Greece                                        3.3       0.3      -0.5     -0.1
                                                                                         on promised structural reforms.
   Portugal                                      2.6       2.1       0.5      1.0
   Ireland                                       2.2       1.7       0.7      1.1      We have raised our growth
  Russia                                        12.2       6.6       6.3      6.0        forecast for the United Kingdom
  T urkey                                       18.2       6.2       6.4      6.0        as the housing and construction
                                                                                         sectors are showing strong
  China                                          2.4       2.5       3.3      3.9        improvement thanks to the
  India*                                         6.6       7.3       5.5      6.5        government’s housing loan
  Japan                                         -0.3      -0.1       0.7      1.2        initiative. We now expect growth
  South Korea                                    3.2       1.4       1.9      2.9        of 1.0% in 2013 and 1.5% in 2014
  Indonesia                                      8.3       4.3       9.9      8.3        (up from 0.8% and 1.1%,
  Australia                                      3.1       2.2       2.5      3.0
                                                                                         respectively). With the economic
                                                                                         outlook brightening and inflation
  T hailand                                      2.6       3.6       2.1      3.0
                                                                                         remaining elevated, the case for
  Brazil                                         6.6       5.8       5.8      6.0        additional quantitative easing by
  Colombia                                       5.6       2.4       2.7      3.0        the Bank of England has
  Peru                                           2.6       2.6       2.9      3.0        dwindled, though interest rate
  Chile                                          3.4       1.5       2.6      3.3        normalization is still very far off.

  *WPI inflation.




                                                                                                                                 3
Global Economics                                                                                                                   August 1, 2013

                                                                                                               Global Forecast Update


 International                                           2000-11            2012      2013f      2014f     Forecast
                                                                                                              Changes
 Curre nt Account Balance                                                      (% of GDP)
     Canada                                                      0.4        -3.4        -2.9       -2.3   International
     United States                                              -4.3        -2.7        -2.6       -2.7      The Latin American economic
     Mexico                                                     -1.3        -0.9        -1.5       -1.9        growth outlook presents a
                                                                                                               divergent picture. Brazil has been
     United Kingdom                                             -2.0        -3.8        -2.9       -2.6        the most visible economy to
     Euro zone                                                  -0.2         1.0         1.3        1.5        experience a sharp slowdown
      Germany                                                    3.9         6.4         6.3        5.9        leading us to downgrade our
      France                                                    -0.2        -2.2        -2.0       -1.9        growth estimates to 2.5% and
      Italy                                                     -1.4        -0.5         0.0        0.2        3.5% for 2013 and 2014,
      Spain                                                     -5.7        -1.0         0.4        1.0        respectively. In addition, we have
      Greece                                                    -8.8        -3.4        -3.0       -1.7        weakened our end-year currency
      Portugal                                                  -9.7        -1.5        -1.4       -0.9        forecasts for all floating exchange
      Ireland                                                   -1.7         4.4         3.2        3.5        rates in Latin America.  
     Russia                                                      8.5         3.7         3.0        2.2
     T urkey                                                    -4.0        -6.1        -6.7       -7.4   Commodities
     China                                                       4.7         2.7         2.5        2.2      WTI oil prices surged to US$108
                                                                                                               per barrel on July 19th, reaching
     India                                                      -1.0        -5.4        -5.1       -4.6
                                                                                                               virtual parity with Brent — the
     Japan                                                       3.2         1.1         1.1        1.5
                                                                                                               international benchmark. Oil
     South Korea                                                 2.3         3.8         3.8        3.7        traders bid up Nymex near-by
     Indonesia                                                   2.1        -2.8        -2.7       -2.3        futures anticipating an end to the
     Australia                                                  -4.3        -3.7        -3.1       -3.0        oil supply glut at the Cushing,
     T hailand                                                   3.2         0.0         0.1        1.0        Oklahoma hub — linked to rapidly
                                                                                                               rising new supplies of ‘light, tight
     Brazil                                                     -1.0        -2.4        -2.9       -3.2
                                                                                                               oil’ and Alberta oil sands, which
     Colombia                                                   -1.7        -3.2        -3.2       -3.5
                                                                                                               kept WTI oil prices below Brent for
     Peru                                                       -1.0        -3.6        -4.2       -3.9
                                                                                                               the past three years. Expansion of
     Chile                                                       0.6        -3.5        -4.1       -4.7
                                                                                                               the Seaway Pipeline (Cushing to
                                                                                                               Texas) and completion/reversal of
 Commodities                                                                                                   the Permian Express, Longhorn &
                                                                                                               West Texas Gulf pipelines from
                                                                            (annual average)                   northern Texas to Houston-area
 WT I Oil (US$/bbl)                                              57           94         99        102         refineries have drained away new
 Brent Oil (US$/bbl)                                             58         112         108        108         Permian and Eagle Ford supplies
 Nymex Natural Gas (US$/mmbtu)                                 5.67         2.83       3.75       4.00         from Cushing (the pricing point for
                                                                                                               the Nymex contract).
 Copper (US$/lb)                                               2.10        3.61        3.30       3.05
 Zinc (US$/lb)                                                 0.77        0.88        0.88       1.10       The sooner-than-expected return
 Nickel (US$/lb)                                               7.62        7.95        7.00       8.00         of WTI oil prices close to world
 Gold, London PM Fix (US$/oz)                                   668       1,670       1,375      1,200         levels will bolster ‘oil patch’
                                                                                                               earnings in Alberta and
 Pulp (US$/tonne)                                               718          872        925        870         Saskatchewan in 13Q3. Discounts
 Newsprint (US$/tonne)                                          581          640        615        645         off WTI have also narrowed.
 Lumber (US$/mfbm)                                              272          299        350        390
                                                                                                             TransCanada will proceed with the
                                                                                                               ‘Energy East Pipeline Project’,
                Provincial GDP                                         Commodity Price Trends                  following a successful binding
                                                                                                               open season. Subject to
6                                                       900
     annual % change                                           index:2002Q1=100                                regulatory approval, the project
5                                                       800                                                    would open up valuable new
4                                                                                                              outlets for Alberta and
                                                        700               Nickel                               Saskatchewan crude oil in Eastern
3                                                                                               Copper
                                                                                      WTI Oil
                                                                                                               Canada (displacing oil imports)
2                                                       600
                                                                                                               and the potential for exports via
1                                                       500                                                    new marine loading terminals in
0                                                                                                              Quebec City and Saint John, New
                                                                  Natural
                                                        400       Gas                                          Brunswick. Exports could move to
-1
                                                                                                               PADD I and III in the United
-2                           2012                       300                                                    States, Europe and the west coast
-3                           2013f
                                                        200                                                    of India. Line capacity will exceed
-4                           2014f                                                                             1 mb/d.
                                                        100
-5                                                                             Gold
-6                                                        0
     NL PE NS NB QC ON MB SK AB BC                            02 03 04 05 06 07 08 09 10 11 12 13

     Source: Statistics Canada, Scotiabank Economics.         Source: Bloomberg, Scotiabank Economics.


                                                                                                                                                      4
Global Economics                                                                                        August 1, 2013

                                                                                    Global Forecast Update


 North America                          2000-11     2012     2013f    2014f     Forecast
                                                                                   Changes
 Canada                                      (annual % change)
                                                                               Canada & United States
 Real GDP                                   2.2       1.7      1.7      2.3
  Consumer Spending                         3.1       1.9      2.1      2.4       Our forecast for U.S.GDP growth
                                                                                    has been lowered to 1.5% from
  Residential Investment                    4.0       5.8     -2.0     -2.4
                                                                                    1.8%, as historical benchmark
  Business Investment                       3.6       4.8      1.7      5.2
                                                                                    revisions reduced the pace of
  Government                                3.1       1.0      0.7     -0.3         economic activity over the past
  Exports                                   0.6       1.5      2.7      5.5         several quarters. However, the
  Imports                                   3.5       3.1      1.2      3.6         2014 forecast remains unchanged
 Nominal GDP                                4.8       3.4      3.2      4.2         at 2.6%, as we expect growth to
 GDP Deflator                               2.5       1.7      1.5      1.8
                                                                                    build momentum alongside a
                                                                                    strengthening housing market and
 Consumer Price Index                       2.1       1.5      1.1      1.8
                                                                                    the best household balance
   Core CPI                                 1.8       1.7      1.4      1.7
                                                                                    sheets in more than a decade.
 Pre-T ax Corporate Profits                 6.1      -4.9     -2.4      6.0
 Employment                                 1.5       1.2      1.3      1.3       We have increased our forecast
   thousands of jobs                        242      203      227       223         for Canadian GDP by 0.1
 Unemployment Rate (%)                      7.1       7.2      7.1      6.9
                                                                                    percentage points for both 2013
                                                                                    and 2014. The upgrade for 2013
 Current Account Balance (C$ bn.)           2.0     -62.2    -54.0    -45.3         reflects stronger-than-expected
 Merchandise T rade Balance (C$ bn.)       41.1     -12.0     -3.9      6.0         retail sales volumes in the most
 Federal Budget Balance (C$ bn.)           -3.3     -23.0    -18.0     -8.0         recent quarter, especially new
  per cent of GDP                          -0.1      -1.3     -1.0     -0.4         motor vehicle sales. Meanwhile,
                                                                                    the upgrade to 2014 reflects the
 Housing Starts (thousands)                 200      215       178      170         potential benefit for Canadian
 Motor Vehicle Sales (thousands)          1,588    1,677     1,720    1,725         exports of the improvement in the
 Motor Vehicle Production (thousands)     2,421    2,464     2,500    2,550         U.S. economy, as well as recent
 Industrial Production                       0.3      0.9       2.4      3.3        depreciation of the Canadian
                                                                                    dollar to a three-year low. We
 Unite d State s                                                                    have trimmed our Canadian dollar
                                                                                    forecast, reflecting the renewed
 Real GDP                                   1.9       2.8      1.5      2.6         strength of the greenback, and the
  Consumer Spending                         2.3       2.2      2.0      2.7         attractiveness of U.S. investments
  Residential Investment                   -4.1      12.9     14.2     14.6         as U.S. final domestic demand
  Business Investment                       1.5       7.3      2.5      5.3         outperforms its competitors
  Government                                1.7      -1.0     -2.0     -0.6         among the advanced nations. 
  Exports                                   4.0       3.5      1.9      4.8       In the United States, negotiations
  Imports                                   3.4       2.2      2.1      4.9         for the September 30th expiry of
 Nominal GDP                                4.0       4.6      3.0      4.6         the federal current continuing
 GDP Deflator                               2.1       1.7      1.5      1.9         resolution providing the
                                                                                    government spending authority
 Consumer Price Index                       2.5       2.1      1.5      2.0
                                                                                    and a debt ceiling increase could
   Core CPI                                 2.0       2.1      1.7      1.8
                                                                                    alter expenditure and revenue
 Pre-T ax Corporate Profits                 7.0       7.0      2.5      7.5         growth entering fiscal 2014 in
 Employment                                 0.2       1.7      1.7      1.8         October. In Canada, monthly
   millions of jobs                        0.20      2.24     2.25     2.46         federal data suggest a narrower
 Unemployment Rate (%)                      6.2       8.1      7.5      6.9         fiscal 2012-13 deficit than Ottawa
 Current Account Balance (US$ bn.)         -553      -440     -443     -465
                                                                                    projected, potentially covering the
                                                                                    unexpected disaster expenses.
 Merchandise T rade Balance (US$ bn.)      -645      -741     -742     -790
 Federal Budget Balance (US$ bn.)          -481    -1,087     -720     -680    Mexico
  per cent of GDP                           -3.3      -6.7     -4.3     -3.9      In line with weaker economic
 Housing Starts (millions)                 1.38      0.78     0.98     1.20         activity in the United States, we
 Motor Vehicle Sales (millions)            15.2      14.4     15.4     16.0         have revised our GDP growth
 Motor Vehicle Production (millions)       10.4      10.3     10.9     11.3         projection for Mexico slightly lower
 Industrial Production                      0.5       3.6      2.8      3.6
                                                                                    in 2013 to 2.9%. We continue to
                                                                                    believe that 2014 will present a
                                                                                    brighter outlook with the economy
 Me x ico                                                                           expanding by an average rate of
 Real GDP                                   2.2       3.9      2.9      4.2         4.2%.
 Consumer Price Index (year-end)            4.8       3.6      4.0      4.0
 Unemployment Rate (%)                      3.8       5.0      4.7      4.3
 Current Account Balance (US$ bn.)        -11.4     -11.4    -20.4    -28.1
 Merchandise T rade Balance (US$ bn.)      -7.5      -0.1    -10.1    -17.2
 Industrial Production                      1.6       3.6      2.0      4.3




                                                                                                                           5
Global Economics                                                                                                                                                August 1, 2013

                                                                                                                                           Global Forecast Update


Provincial
 Provincial                2000-11 2012 2013f 2014f
                          2000-11 2012 2013f 2014f                                      2000-11
                                                                                       2000-11         2012 2013f  2014f
                                                                                                       2012 2013f 2014f                Forecast
                                                                                                                                          Changes
                                               Real GDP*
                                              Real GDP*                                   Budget Balances*, FY March
                                                                                         Budget Balances*,FY March 3131
                                          (annual %% change)
                                            (annual change)                                            ($millions)
                                                                                                       ($ millions)                   Provinces
                                                                                                                                         Real GDP growth in 13Q3 will be
Canada
Canada                              2.2            1.7            1.7            2.3        106      -26,220 -23,000        -18,000        boosted in Alberta by post-
                                                                                                                                           flooding repairs and in Quebec by
                                                                                                                                           a rebound from a broad-based
  Newfoundland & Labrador
 Newfoundland & Labrador            3.1           -4.8            5.0            1.8        133          883      -431         -564
                                                                                                                                           construction strike and the
  Prince Edward
 Prince Edward Island Island        1.9            1.2            1.3            1.6        -32          -78       -69          -59        rebuilding after the tragic rail
  Nova Scotia
 Nova Scotia                        1.7            0.2            1.2            1.8         73         -248      -356           16        explosion. As Alberta recovers,
 New Brunswick
  New Brunswick                     1.8           -0.6            0.9            1.6        -77         -261      -411         -479        mitigating future flooding damage
                                                                                                                                           has become an additional
  Quebec
 Quebec                             1.9            1.0            1.1            1.8       -623       -2,628    -1,500            0        investment priority.
  Ontario
 Ontario                            1.9            1.4            1.4            2.0     -3,374      -12,969    -9,782      -11,743      Alberta and Saskatchewan are
                                                                                                                                           benefitting from the recent
  Manitoba
 Manitoba                           2.2            2.7            1.8            2.1        189 **      -999      -583         -518        narrowing of the spread between
  Saskatchewan
 Saskatchewan                       2.2            2.2            2.8            2.8        393          352        58 *         32        Brent and WTI oil prices and
                                                                                                                                           between WTI and Western
  Alberta
 Alberta                            3.0            3.9            2.9            3.6      3,627            0         0 *          0
                                                                                                                                           Canadian Select heavy oil prices.
 British Columbia
  British Columbia                  2.6            1.7            1.3            2.3        541       -1,814    -1,146 *        153        For potash, uncertainty and
                                                                                                                                           potentially lower prices from global
                           **2000-07: estimated; 2012: basic
                            2000-07: Estimated; 2012: basic prices, Industry basis.    **Final results. Other FY13 & FY14 data:
                                                                                         FY13 & FY14 data: Provinces' estimates.
                                                                                                                                           marketing adjustments could well
                           prices, industry basis.                                     Provinces' estimates. **FY04-FY11.
                                                                                       ** FY04-FY11.                                       slow future investment, following
                                                                                                                                           elevated capital spending this year
                                             Employment
                                            Employment                                            Unemployment Rate
                                                                                                  UnemploymentRate                         across Saskatchewan’s economy.
                                           (annual % change)                                       (annual average, %)
                                          (annual % change)                                        (annual average, %)                   Solid gains in retail sales for the
                                                                                                                                           first five months of 2013 relative to
Canada
Canada                              1.5            1.2            1.3            1.3        7.1          7.2          7.1       6.9        a year earlier are supporting
                                                                                                                                           growth, once again, in Alberta,
                                                                                                                                           Newfoundland & Labrador and
  Newfoundland & Labrador
 Newfoundland & Labrador            0.9            2.3            1.9            1.3       15.0         12.5      11.4         10.8
                                                                                                                                           Saskatchewan, in contrast to soft
 Prince Edward Island Island
  Prince Edward                     1.5            1.1            1.2            0.8       11.3         11.3      11.0         10.8        retail outlays to date this year in
 Nova Scotia
  Nova Scotia                       1.0            0.6            0.3            0.8        8.8          9.0       9.1          8.8        the Maritime Provinces, British
 New Brunswick
  New Brunswick                     0.6           -0.2            0.0            0.5        9.4         10.2      10.5         10.3        Columbia and Ontario.
                                                                                                                                         Higher nationwide non-residential
 Quebec
  Quebec                            1.4            0.8            1.1            1.0        8.2          7.8          7.6       7.4        construction during the first half of
 Ontario
  Ontario                           1.5            0.8            1.1            1.1        7.0          7.8          7.6       7.4        2013 was largely concentrated in
                                                                                                                                           Manitoba, British Columbia and
  Manitoba
 Manitoba                           1.2            0.9            1.1            1.0        4.9          5.3          5.1       5.0        Quebec, offering some offset for
 Saskatchewan
  Saskatchewan                      0.9            2.1            2.7            1.6        5.1          4.7          4.0       4.0        the latter two provinces witnessing
 Alberta                            2.6            2.7            2.3            2.3        4.8          4.6          4.5       4.3        slower housing starts this year.
  Alberta
 British Columbia
  British Columbia                  1.5            1.7            0.7            1.1        6.7          6.7          6.6       6.5



                                        Housing Starts
                                         Housing Starts                                          Motor Vehicle Sales
                                                                                                  Motor Vehicle Sales
                                    (annual, thousands units)
                                   (annual, thousands of of units)                             (annual, thousands units)
                                                                                              (annual, thousands ofof units)

Canada
Canada                             200            215            178            170       1,588        1,677     1,720       1,725

 Atlantic
  Atlantic                           12             13             11             10        114          126          128      128

  Quebec
 Quebec                              45             47             38             38        405          416          415      416
  Ontario
 Ontario                             73             77             56             55        603          618          632      633

  Manitoba
 Manitoba                             5              7              7              6         44           50           55       55
  Saskatchewan
 Saskatchewan                         4             10              7              7         42           55           58       58
  Alberta
 Alberta                             34             33             36             32        205          239          255      257
 British Columbia
  British Columbia                   27             27             23             22        175          173          177      178




                                                                                                                                                                                   6
Global Economics                                                                                          August 1, 2013

                                                                                           Global Forecast Update


 Quarterly Forecasts                12Q4    13Q1    13Q2    13Q3f   13Q4f     14Q1f       14Q2f   14Q3f   14Q4f


 Canada
 Real GDP (q/q, ann. % change)       0.9     2.5     1.7      2.4       2.2        2.3      2.4     2.4     2.5
 Real GDP (y/y, % change)            1.0     1.4     1.5      1.9       2.2        2.2      2.3     2.3     2.4
 Consumer Prices (y/y, % change)     0.9     0.9     0.8      1.2       1.6        1.6      1.8     1.9     2.0
  Core CPI (y/y % change)            1.2     1.3     1.2      1.5       1.5        1.6      1.7     1.8     1.8
 Unite d State s
 Real GDP (q/q, ann. % change)       0.1     1.1     1.7      2.2       2.5        2.8      2.8     3.0     3.0
 Real GDP (y/y, % change)            2.0     1.3     1.4      1.3       1.9        2.3      2.6     2.8     2.9
 Consumer Prices (y/y, % change)     1.9     1.7     1.4      1.4       1.4        1.6      2.0     2.1     2.1
  Core CPI (y/y % change)            1.9     1.9     1.7      1.7       1.7        1.6      1.7     1.8     1.9



 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        1.00     1.00    1.00    1.00
 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    4.15    4.01     4.00     4.00        4.00     4.00    4.25    4.50
 Central Bank of Brazil             7.25    7.25    8.00     9.00     9.75        9.75     9.75   10.00   10.75
 Bank of the Republic of Colombia   4.25    3.25    3.25     3.25     3.25        4.00     4.00    4.50    4.50
 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    5.00     5.00     5.00        5.50     5.75    6.00    6.00
 Europe
 European Central Bank              0.75    0.75    0.50     0.50     0.50        0.50     0.50    0.50    0.50
 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    2.75     2.50     2.50        2.50     2.75    2.75    3.00
 People's Bank of China             6.00    6.00    6.00     6.00     6.00        6.30     6.30    6.60    6.60
 Reserve Bank of India              8.00    7.50    7.25     7.25     7.25        7.25     7.25    7.25    7.25
 Bank of Korea                      2.75    2.75    2.50     2.50     2.50        2.50     2.50    2.75    3.00
 Bank Indonesia                     5.75    5.75    6.00     6.75     7.00        7.00     7.00    7.00    7.00
 Bank of T hailand                  2.75    2.75    2.50     2.50     2.50        2.50     2.75    2.75    3.00

 Canada
 3-month T -bill                    0.93    0.98    1.02     1.00     1.00        1.00     1.00    1.00    1.10
 2-year Canada                      1.14    1.00    1.22     1.15     1.25        1.50     1.75    1.95    2.20
 5-year Canada                      1.38    1.30    1.80     1.70     1.85        2.05     2.35    2.60    2.85
 10-year Canada                     1.80    1.87    2.44     2.45     2.55        2.70     2.90    3.15    3.40
 30-year Canada                     2.37    2.50    2.90     2.90     3.00        3.15     3.30    3.50    3.70
 Unite d State s
 3-month T -bill                    0.04    0.07    0.03     0.10     0.10        0.10     0.10    0.10    0.10
 2-year T reasury                   0.25    0.24    0.36     0.30     0.35        0.45     0.60    0.85    1.10
 5-year T reasury                   0.72    0.76    1.39     1.35     1.45        1.65     2.00    2.25    2.50
 10-year T reasury                  1.76    1.85    2.49     2.50     2.65        2.80     3.00    3.25    3.50
 30-year T reasury                  2.95    3.10    3.50     3.65     3.75        3.80     3.95    4.15    4.30
 Canada-U.S. Spre ads
 3-month T -bill                     0.89    0.91    0.99    0.90      0.90        0.90    0.90    0.90    1.00
 2-year                              0.89    0.76    0.86    0.85      0.90        1.05    1.15    1.10    1.10
 5-year                              0.66    0.54    0.41    0.35      0.40        0.40    0.35    0.35    0.35
 10-year                             0.04    0.02   -0.05   -0.05     -0.10       -0.10   -0.10   -0.10   -0.10
 30-year                            -0.58   -0.60   -0.60   -0.75     -0.75       -0.65   -0.65   -0.65   -0.60



                                                                                                                       7
Global Economics                                                                                                                                               August 1, 2013

                                                                                                                                       Global Forecast Update


    Financial Markets                           12Q4          13Q1          13Q2           13Q3f          13Q4f       14Q1f         14Q2f        14Q3f         14Q4f


    Exchange Rate s                                                                         (end of period)
    Am e ricas
    Canadian Dollar (USDCAD)                     0.99          1.02          1.05            1.04          1.05        1.05           1.05         1.04          1.04
    Canadian Dollar (CADUSD)                     1.01          0.98          0.95            0.96          0.95        0.95           0.95         0.96          0.96
    Mexican Peso (USDMXN)                       12.85         12.33         12.93           12.57         12.59       12.66          12.54        12.59         12.74
    Brazilian Real (USDBRL)                     2.05          2.02          2.23            2.15            2.20          2.20        2.20         2.30          2.30
    Colombian Peso (USDCOP)                     1767          1825          1923            1910            1900          1900        1900        1910          1920
    Peruvian Nuevo Sol (USDPEN)                  2.55          2.59          2.78            2.70            2.66          2.65        2.65        2.60          2.60
    Chilean Peso (USDCLP)                        479           472           508             505             500           500         500          505           510

    Canadian Dollar Cross Rate s
    Euro (EURCAD)                                1.31          1.30          1.37            1.31          1.31        1.31           1.30         1.29          1.28
    U.K. Pound (GBPCAD)                          1.61          1.55          1.60            1.53          1.52        1.52           1.52         1.50          1.50
    Japanese Yen (CADJPY)                          87            93            94             100           100         101            102          105           106
    Australian Dollar (AUDCAD)                   1.03          1.06          0.96            0.96          0.95        0.95           0.96         0.96          0.97
    Mexican Peso (CADMXN)                       12.96         12.12         12.29           12.09         11.99       12.05          11.94        12.11         12.25

    Europe
    Euro (EURUSD)                                1.32          1.28          1.30              1.26         1.25          1.25        1.24         1.24          1.23
    U.K. Pound (GBPUSD)                          1.63          1.52          1.52              1.47         1.45          1.45        1.45         1.44          1.44
    Swiss Franc (USDCHF)                         0.92          0.95          0.95              0.96         0.98          0.98        1.00         1.01          1.02
    Swedish Krona (USDSEK)                       6.50          6.53          6.70              6.83         6.80          6.72        6.69         6.69          6.67
    Norwegian Krone (USDNOK)                     5.56          5.85          6.07              5.80         5.75          5.70        5.60         5.50          5.40
    Russian Ruble (USDRUB)                       30.5          31.1          32.8              32.6         32.5          32.6        32.7         32.9          33.0
    T urkish Lira (USDT RY)                      1.78          1.81          1.93              1.93         1.92          1.92        1.93         1.93          1.94

    Asia/Oce ania
    Japanese Yen (USDJPY)                          87            94          99               104            105         106           107          109           110
    Australian Dollar (AUDUSD)                   1.04          1.04        0.91              0.92           0.90        0.90          0.91         0.92          0.93
    Chinese Yuan (USDCNY)                        6.23          6.21        6.14              6.12           6.10        6.09          6.07         6.06          6.04
    Indian Rupee (USDINR)                        55.0          54.3        59.4              61.0           62.0        61.8          61.5         61.3          61.0
    South Korean Won (USDKRW)                   1064          1111        1142              1120           1120        1115          1110         1105          1100
    Indonesian Rupiah (USDIDR)                  9793          9735       10004             10400          10500       10525         10550        10575         10600
    T hai Baht (USDT HB)                        30.6          29.3        31.1              31.6            32.0        32.1          32.3         32.4          32.5




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

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


4                                                  4                  Euro                                            4
                                  Forecast                            zone
                                                                                                                                  Canada
3                                                  2                                                                  3
                         Canada
                                                                                Canada                                2
2                                                  0
          Euro zone
1                                                  -2                                                                 1
                                                                         U.S.
0                                                                                                                     0
                                                   -4
    04 05 06 07 08 09 10 11 12 13 14                                                                                      04 05 06 07 08 09 10 11 12 13 14
                                                        07    08   09     10    11        12     13    14
     Source: Bloomberg, Scotiabank Economics.            Source: Bloomberg, Scotiabank Economics.                          Source: Bloomberg, Scotiabank Economics.



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