New Year, New Promise Aron Gampel Vice-President & Deputy Chief Economist Scotiabank Economics March 5, 2013

Source: DataInsight, Scotiabank Economics. Canada’s Growth Performance At High End Of G7 Trends Cumulative Output Rise From 2009 Trough % change Cumulative Output Rise From Prior Peak % change Euro zone (ex. Germany)

Canada’s Performance Underpinned By A Diversified Economy Canada’s Primary Sector Output index, 2004=100 Oil, Gas & Coal (3%) Agriculture & Fishing (2%) Mining (1%) Forestry & Lumber (2%) Canadian Output index, 2004=100 Manufacturing (9%) Primary (11%) Total Construction (6%) Services (72%) forecast Bracketed numbers represent share of total output. Source: Statistics Canada, Scotiabank Economics. Utilities (3%)

Source: Statistics Canada, Scotiabank Economics. Nominal GDP Per Capita index: 2004=100 Nominal GDP Per Capita index: 2004=100 Ontario B.C. Alberta Quebec Saskatchewan P.E.I. New Brunswick Nova Scotia Newfoundland and Labrador forecast Manitoba Growth And Income Prospects Best In Canada’s Resource Regions

annual % change Source: Bloomberg, U.S. BEA, Statistics Canada, Eurostat, Scotiabank Economics. Real GDP Rebuilding Momentum, But Slowly

U.S. Canada Housing Starts forecast Motor Vehicle Sales U.S. Canada forecast U.S. Begins To Play Catch-Up In Big-Ticket Purchases Source: Scotiabank Economics, CMHC, U.S. Census Bureau, Ward’s Automotive. index: 2004=100

Existing Home Sales Canadian Housing Activity Adjusting Lower For Longer 000s of units, annualized Source: CREA, Scotiabank Economics. 10-year average Existing Home Prices $000s, national average 10-year average

Source: Statistics Canada, U.S. BEA, Scotiabank Economics. Real Government Spending – Canada annual % change Real Government Spending – U.S. annual % change 0% From Fiscal Stimulus To Fiscal Drag

Source: Statistics Canada, Bloomberg, Scotiabank Economics. Commodities Canadian Merchandise Trade Balances C$ billions, s.a. Merchandise Trade ex. Commodities Merchandise Trade Faster Imports, Slower Exports Erode Canada’s Trade Performance Canadian Dollar And Oil Prices CADUSD Parity Canadian Dollar (RHS) forecast WTI Oil (LHS) WTI Oil US$/bbl $100/bbl

Canada’s Large Current Account Deficit Will Be Slow To Unwind ¹ Includes industrial M&E, motor vehicles & parts, aircraft and other transportation equipment, ² industrial materials, special transactions, and other items. Source: Statistics Canada, Scotiabank Economics.

Mortgage Delinquencies U.S. Canada % of total loans past due by three or more months Source: CBA, MBA, CMHC, U.S. Census Bureau, Scotiabank Economics. Less Financial Strains In Canada, But Risks Persist budget balances % of GDP Fiscal year-ends: U.S. federal – Sept. 30, Canada – March 31. U.S. Federal ex. Social Security Government Budget Imbalances Source: U.S. BEA, Statistics Canada, Budget documents; Nominal GDP and federal forecasts: Scotiabank Economics. forecast Aggregate Provincial Canada Federal

Global Industrial Activity Reviving, But Slowly Global Orders And Production Global New Orders (LHS) Global Industrial Production (RHS) 6 month annualized % change index Record Aircraft Backlog Source: Bloomberg, J.P. Morgan, CPB Netherlands Bureau for Economic Policy Analysis, Scotiabank Economics. Thousands of Units Years backlog

Profits And Large Cash Holdings to Underpin Investment Spending Growth In Corporate Profits … y/y % change United States Canada Source: U.S. BEA, Statistics Canada, Scotiabank Economics. … and Business Fixed Investment index, quarterly, zero=recession trough forecast

Canada U.S. Non-Residential Construction index: 2004Q1=100 % Canada U.S. Office Vacancy Rates Source: Statistics Canada, U.S. BEA, Cushman & Wakefield, CBRE, Scotiabank Economics. Vancouver Calgary Non-Residential Construction Much Stronger In Canada Toronto

, Source: Bank of Canada, U.S. Federal Reserve, European Central Bank, Scotiabank Economics. Central Bank Rates U.S. forecast % Canada Euro zone Yield Curve – Flatter Now, Steeper Later U.S. yield Canada Germany forecast Source: Bloomberg, Scotiabank Economics. 10-year Bond Yields

Source: Bank of Canada, U.S. Federal Reserve, European Central Bank, Scotiabank Economics. Central Bank Rates U.S. forecast % Canada Euro zone Less Inflation Risk Now, More Later U.S. Average annual % change Canada Euro zone Source: Statistics Canada, U.S. BLS, Bloomberg, Scotiabank Economics. Consumer Price Inflation forecast

* index 2005Q3=100, Q3/Q3, NSA. Source: Statistics Canada, U.S. BLS, Eurostats, Bloomberg, Scotiabank Economics. Employment index, 2004 Q1=100 Unemployment Rate % U.S. Canada Germany Euro zone (ex. Germany)* U.K. Canada – Solid Fundamentals, Better Long-Term Growth Prospects (ex. Germany)

Source: Statistics Canada, IMF, Scotiabank Economics. Population Growth population growth rate, % Canada – Solid Fundamentals, Better Long-Term Growth Prospects Western Canada Quebec Net Immigration 000s Net Interprovincial Migration 000s Atlantic Ontario Western Canada Quebec Atlantic Ontario (ex. Germany)

Source: Bloomberg, Scotiabank Economics. Bank Share Price Performance % change Canada’s banking system ranked the world’s soundest for the 5 th consecutive year -- World Economic Forum’s Global Competitiveness Report, Canadian financial institutions make up 7 of the world’s 50 safest banks -- Global Finance’s World’s 50 Safest Banks, Canada is one of 11 countries (in addition to Australia, Denmark, Norway, Singapore, Sweden and Switzerland) whose sovereign debt is ‘AAA’ rated with a stable outlook, and one of 13 ‘AAA’ countries which includes The Netherlands with either stable or negative outlooks. Scotiabank named 2012 Bank of the Year by FT’s The Banker. Canada – Solid Fundamentals, Better Long-Term Growth Prospects

2012, % National Average assumes 10% Prov. CIT rate and cross- Canada HST Marginal Effective Tax Rates on Capital Source: Finance Canada, Finance Ontario, Scotiabank Economics. Corporate Income Tax Rates* Japan France U.S. Germany Canada Italy U.K. * Central plus sub-central rates. Source: OECD, Scotiabank Economics. 2012, % Canada Small Developed Countries OECD U.S. Canada – Solid Fundamentals, Better Long-Term Growth Prospects

Source: Statistics Canada, Scotiabank Economics. International Investment In Canada C$ billions Commodities Dominate Exports Portfolio Inflows Foreign Direct Investment Canada – Solid Fundamentals, Better Long-Term Growth Prospects % share of total export receipts, Commodities 55% All Other Goods 35% Vehicles & Parts 14% Energy 24% Mining 14% Forest Products 5% Agri- Food 7%

* Excluding Mexico. Source: WTO, IMF, Strategis, Scotiabank Economics. Canadian Exports % share of total exports, 2012 Canada Must Focus More On Global Markets For Long-Term Growth … World Exports % of GDP, 2011

% change, compound annual growth Source: U.S. BLS, Scotiabank Economics. … But Competitive Challenges Persist … Wages Productivity Unit Labour Costs (local currency) Currency (against USD) Unit Labour Costs (USD) 0

¹ volumes, real GDP. ² volumes of goods & services. Source: IMF, Scotiabank Economics.... Will Likely Narrow … And Trade Prospects Internationally May Be Slightly Tempered The 3 Percentage Point Gap...

Emerging Market Economies – Consensus Growth Leaders 1980s 1990s 2000s 1980s 1990s 2000s 1980s 1990s 2000s 1980s 1990s 2000s 1980s 1990s 2000s Bracketed figures represent percent share of the global economy. Source: Consensus Forecasts Global Outlook, October Real GDP, average annual % change 2010s

Gross & Net Debt Current Account Balance Foreign Reserves Gross National Savings 2012, % of GDP General Gov’t, 2012, % of GDP 2012 Q4, US$ trillions 2012, % of GDP Emerging Market Economies Have More Financial Flexibility * Emerging and Developing markets. Source: IMF, Bloomberg, Scotiabank Economics. Euro zone Germany

Per Capita GDP* Motor vehicles per 1000 people Number of Airports Health Care Expenditure % of GDP Services Share % of GDP India1, China5, Brazil12, , Canada50, , United States 48, , *Market exchange rate, USD. Source: IMF WEO October 2012 (estimates), Ward’s Automotive Reports, CIA World Factbook. Emerging Market Economies’ Have Stronger Growth Dynamics

Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate. Demographics Will Continue To Drive Emerging Market Economies … Population billions, 2010* Euro area Japan Brazil Mexico Russia U.S. Rest of Asia (ex. Japan) Indonesia Vietnam Korea Thailand Canada Demographic Trends millions of people Change in Urbanized Population yrs25-64 yrs65+ yrs India China Brazil Mexico1710 U.S.4837 Canada15 Japan Russia Europe Change in Population 2011 – 2030 (millions)

… Spending Power … Population billions, 2010* Euro area Japan Brazil Mexico Russia U.S. Rest of Asia (ex. Japan) Indonesia Vietnam Korea Thailand Canada China (Urban) U.S. Euro zone index: 2004=100 Canada U.K. Growth In Personal Disposable Income Germany Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate. Source: Bloomberg, IMF, Statistischen Bundesamtes, Scotiabank Economics.

… And Oil Consumption … Population billions, 2010* Euro area Japan Brazil Mexico Russia U.S. Rest of Asia (ex. Japan) Indonesia Vietnam Korea Thailand Canada Global Oil Consumption Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2010 Revision. *IMF estimate. Index, 1999=100 Emerging Asia China United States Source: Statistics Canada, Bloomberg, Scotiabank Economics.

… Reshaping The Global Manufacturing Landscape Auto Sales millions of units North America* Europe *Includes light trucks in North America. Source: Scotiabank Economics, Ward’s Automotive. China forecast millions of units Motor Vehicle Production North America* Europe China forecast

Source: Industry Canada, Scotiabank Economics. Trends In Canadian Exports By Product

Source: Industry Canada, Scotiabank Economics. Trends In Canadian Imports By Product

Source: Scotiabank Economics, Bloomberg. Forecasts at February 28, 2013 Economic & Market Outlook

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