Tracking Economic and Financial Developments in the Current Global Recession

Transcript Tracking Economic and Financial Developments in the Current Global Recession

Tracking Economic and Financial Developments in the Current Global Recession

Rob Wright Deputy Minister of the Department of Finance International Seminar on Timeliness, Methodology and Comparability of Rapid Estimates of Economic Trends May 27, 2009

Outline

• • • •

Global Recession Impact on Canada Economic Action Plan The Role of Data in Policy Development 2

Global Recession

Largest drop in U.S. housing market on record U.S. Housing Starts and Months Supply of Existing Homes

thousands, at annual rates level, months supply at current sales rate 2,400 12 11 2,000 1,600 1,200 Housing Starts (left scale) Months supply of existing homes (right scale) 800 4 400 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 3 6 5 8 7 10 9 Sources: U.S. Census Bureau and U.S. National Association of Realtors.

U.S. S&P/Case-Shiller Home Price Index

index, 2000 Q1 =100 200 180 160 140 120 32% 100 2000 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1 Source: S&P, Fiserv and MacroMarkets LLC.

Effects on cost and availability of credit Credit Spreads

basis points 400 360 320 280 240 200 160 120 80 40 0 -40 Jan 2007 May 2007 Canada (CDOR - OIS) U.S. (LIBOR - OIS) Euro area (LIBOR - OIS) ABCP crisis Sep 2007 Jan 2008 May 2008 Lehman Brothers bankruptcy Sep 2008 Jan 2009 May 2009 Notes: These spreads are a measure of banks’ funding costs relative to a risk-free rate and are a gauge of financial market stress and banks’ financing pressures. The rate on the overnight-indexed swap (OIS) is used as a proxy for expected overnight rates. LIBOR is the London Interbank Offered Rate. CDOR is the Canadian Dealer Offered Rate. Daily data up to and including May 8, 2009.

Source: Bloomberg.

Large financial losses worldwide World Equity Markets

% change since January 1, 2007 0 -10 -20 -30 -40 -50 -60 -70 Total Banks Canada (S&P/TSX) U.S. (S&P 500) U.K. (FTSE 100) EMU (DJ Euro STOXX)

IMF ’ s Estimates of Financial Sector Potential Writedowns (2007-2010) Billions, USD

4500 4000 3500 3000 2500 2000 1500 1000 500 0 World U.S.

Europe* Japan Source: Bloomberg. Up to and including May 8, 2009.

*Europe includes Euro area and the U.K.

Source: IMF’s Global Financial Stability Report, April 2009.

Most severe and synchronized global recession since WWII, with a rapid deterioration in economic prospects in late 2008 Evolution of Private-Sector Average Forecasts for Real GDP Growth in 2009

per cent per cent 9.5

8.5

-1 -2 7.5

China (left) Canada (right) -3 U.S. (right) Eurozone (right) -4 -5 Japan (right) 6.5

Jan 2008 Mar 2008 May 2008 Jul 2008 Sep 2008 Nov 2008 Jan 2009 Mar 2009 -6 May 2009 Date of forecast Source: Blue Chip Economic Indicators - January 2008 to May 2009.

3 2 1 0

World Economic Growth

per cent 7 6 3 2 5 4 Actual 1 0 -1 Forecast -2 1970 1975 1980 1985 1990 1995 2000 2005 Note: World real GDP growth on a purchasing-power parity basis.

Source: International Monetary Fund

World Economic Outlook

, April 2009.

Impact on Canada

• • • •

Canada is facing the recession from a position of strength Strong household and business balance sheets Housing market didn’t have same excesses as the U.S.

Canadian banking sector considered the soundest in the world Best fiscal position in the G7 9

Canada has been less affected than other industrialized nations… Change in real GDP 2008Q2-2008Q4

0.0

-0.6

-2.0

-1.8

-1.9

-2.3

-4.0

-4.4

-6.0

Canada United States Euro Area United Kingdom Japan Source: Statistics Canada; U.S. Bureau of Economic Analysis (advance report for 2009Q1); Eurostat Flash Estimates; U.K. Office for National Statistics; Federal Statistical Office of Germany; National Institute for Statistics and Economic Studies of France; National Institute for Statistics of Italy; Economic and Social Research Institute of Japan.

…but employment has been declining Index of Total Employment

Index, January 2005 = 100 108 106 104 102 100 98 Jan-05 Jul-05 Jan-06 Jul-06 Sources: Statistics Canada; U.S. Bureau of Labor Statistics .

Jan-07 Canada U.S. U.S. enters recession Jul-07 Jan-08 Canada enters recession Jul-08 Jan-09

Economic Action Plan

Key elements of Canada’s Economic Stimulus

•

Help Canadians and Stimulate Spending ($12.8 billion)

EI/training/Tax relief •

Stimulate Housing Construction ($7.8 billion)

Social housing/Home Renovation and First-Time Home Buyers’ Tax Credits •

Build Infrastructure ($11.8 billion)

Provincial/Territorial/Municipal/Federal •

Support Businesses and Community Adjustment ($7.5 billion)

Community Adjustment Fund/RInC/CCA/automotive sector/clean energy technologies

Canada’s Economic Action Plan Compared to Stimulus Packages in Other G7 Countries Fiscal stimulus flowing in 2009 and 2010, share of GDP

5.0

4.5

4.0

Provincial Territorial additional

3.5

3.0

2.5

Provincial Territorial from Economic Action Plan

2.0

1.5

1.0

0.5

0.0

Canada Japan U.S.

Germany France U.K.

Italy Source: Government releases. For comparability, stimulus estimates have been put on a Canadian fiscal year basis (April-March) for France, Germany, Italy and the U.S. *This represents the current estimate of the planned provincial spending.

Key element of Canada’s Economic Action Plan: The Extraordinary Financing Framework Insured Mortgage Purchase Program New 10-year Canada Mortgage Bond Canadian Lenders Assurance Facility Canadian Life Insurers Facility EDC and BDC ABS Facility Bank of Canada $125 billion $10 billion $13 billion $12 billion $40 billion Expanded authorities to strengthen financial system 15

Canada expected to be the least affected country reflecting underlying strengths IMF Economic Outlook for G7 Countries

-4.0

-5.0

-6.0

-7.0

per cent 0.0

-1.0

-2.0

-3.0

JP GER IT

2009

UK FR US CAN per cent 1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5

GER UK

2010

0.0

IT US FR JP CAN Source: International Monetary Fund World Economic Outlook, April 2009.

The Role of Data in Public Policy Development

The Role of Data in Public Policy Development

•

Process of policy development is lengthy



Research and analysis required to understand when and where policy change and reform are needed



Designing policy



Developing consensus (political, public)

•

We rely on high quality and timely data throughout the process 18

How can statisticians improve public policy?

•

Identify and close data gaps

•

Priority to long term issues and trends

•

But need to be able to adapt to current developments, if possible



Identify turning points

•

Consult users



Government, private sector, researchers 19

Turning Points

•

Adjust existing products to be even more relevant in current environment

•

Labour Force Survey (LFS) relocation) —add questions to address how people deal with unemployment (training, schooling,

•

Survey of Employment, Participation and Hours (SEPH) the economy —add questions about sales and production prospects across sectors of 20