1. The Global Economy at a Turning Point: What it means for Canada Hendrik Brakel Senior Director Economic, Financial and Tax Policy March 27, 2015

2. US Economy Gaining Strength Source: Federal Reserve Economic Data 2

3. The US Consumer is Back (US Consumer Confidence, 1985=100) Source: Conference Board 3

4. US Job Market Strengthening (Total Private Sector Employment) 4 Sources: US Federal Reserve Board, Haver Analytics

5. US Consumer Debt Way Down (Debt to Personal Disposable Income) 5 Sources: US Federal Reserve Board, Haver Analytics 108%

6. Debt Payments at 20-year Low (Debt Payments to Personal Disposable Income, % quarterly) 6 Sources: US Federal Reserve Board, Haver Analytics

7. 25 months of Rising Home Prices (S&P Case-Schiller 20 City Home Price Index) 7 Sources: S&P

8. US Housing is Recovering (Housing starts, thousands of units) 8 Sources: US Census Bureau, NAR, Haver Analytics

9. Retail Sales Healthy (USD Millions SAAR) 9 Source: Federal Reserve Bank of St. Louis 4%

10. US Corporate Profits at all-time high (USD Billions) 10

11. US spare capacity close to peak (Utilization of existing industrial capacity, %) 11 Sources: US Federal Reserve Board, Haver Analytics

12. Euro Crisis Over? (10-yr sovereign bond yields, %) 12 Sources: Financial Times, Haver Analytics

13. Growth rising slowly (Euro Area Real GDP %) 13 Source: BEA, Haver Analytics

14. BRIC Economies: Slowing? (Real GDP Growth, %) 14 Sources: IMF, Haver Analytics

15. Breaking BRICs?  Brazil – Economy Overheating, No capacity  Russia – Mass Exodus of foreign investment, Deep recession  India – Structural reforms needed; business investment Infrastructure and skills shortages  China – Still growing, but vulnerabilities in the Housing and Financial system  Brazil – Economy Overheating, No capacity  Russia – Mass Exodus of foreign investment, Deep recession  India – Structural reforms needed; business investment Infrastructure and skills shortages  China – Still growing, but vulnerabilities in the Housing and Financial system 15

16. Global Oil Demand and Supply (Thousands of barrels per day) 16 Source: International Energy Agency

17. Global Oil Demand (Millions of barrels/day) 17 Source: International Energy Agency

18. Vehicle Sales in China 18 Source: Ward’s Autos

19. Developing Country Demand Growth is Volatile! (annual percent change) 19 Source: International Energy Agency

20. Long-term Growth Rates (Forecast GDP Growth 2015-2019) 20 Source: IMF, Canadian Chamber of Commerce

21. How to Close the Gap?? (Thousands of barrels per day) 21

22. A 1.5 Mb/d or 1.6% gap  Supply-side  Medium- and long-term output will be affected more than short-term supplies.  US shale drillers idling rigs but US Production averaged 9.13 million at end-Dec, forecast at 9.5 million this year  Projects that have already been funded will for the most part go on  Only Russia will see outright declines in 2015 22  Demand  US GDP accelerating  US Car sales are stellar, up 13% YOY  Emerging markets growth rising from 4.4% to 4.9%  Effects of a 50% price drop will be large, but lagged  Long-term driver of oil demand is emerging market middle class

23. Canadian Total Exports Growth is concentrated in one market... Source: Statistics Canada, Haver Analytics 23 % Change 2014/2013 USA12.8 European Union1.6 China-4.3 Japan-1.3 Mexico-6.5 Hong Kong21.4 Korea, South28.6 India-4.7 Brazil-7.1 Indonesia-10.8 Russia15.9 Other countries6.4 Total All Countries10.2

24. Where is Canadian Growth Coming From? (Q2-2014) Sources: Statistics Canada 24

25. Where is Canadian Growth Coming From? (Q4-2014) Sources: Statistics Canada 25

26. Drivers of the Dollar Oil prices Metal and Ag Commodity prices Canada/US Interest Rate Gap US dollar movement The Canadian ‘halo’ effect Canadian dollar Source: EDC Economics 26

27. Foreigners Exiting Canadian Bonds Federal bonds  Foreign divestment of $25 billion in federal government bonds in the last 5 quarters Foreign investment of $46b in corporate bonds and $45b in Canadian equities during the period 27

28. Canadian dollar outlook (USD per CAD) 28

29. Economies Gaining Strength Source: WSJ, Haver Analytics 29

30. Key Messages  Global growth is recovering!  Consumer spending to slow, but exports picking up  Oil headed back to $60-70 range  But will take time  Big changes in the Canadian economy  Labour/Skills shortages remain/will worsen  Infrastructure, particularly for trade, pipelines to EMs  Border issues, regulations  Access to capital for fast-growing companies  Manufacturing Innovation 30

31. Canadian Chamber of Commerce Policy Priorities Gearing up for Election 2015!!

32. Election Year – Challenges and Opportunities  Challenges  Everything goes through an election lens  Controversial issues become much more difficult  TFW, taxes,  Populism rules! Business-bashing scores points  Canada-US price gap  Government Hypersensitivity to criticism  Recommendations become criticism  Support for trade, FIPA  No money in the budget thanks to falling oil prices  Strong preference for gimmicks above costly across-the-board measures 32

33. Election Year – Challenges and Opportunities  Opportunities – Promises and platforms  Economy is the #1 issue  Harper’s strength  Opposition parties need to prove they are business-friendly  Need for announceables  Every day, every week, something new  Endorsements, support, favourable news coverage  Chamber network is a huge advantage  This is the best time to influence government 33

34. Communications  It’s not about business, it’s about jobs and prosperity for Canadians  Key Theme of Competitiveness  “A Canada that wins” or “Making Canada #1” 34

35. 5 Things that every successful business needs People Capital Technology and Innovation Access to markets Efficient Regulatory environment

36. Any Questions? Hendrik Brakel Senior Director, Economic, Financial and Tax Policy | Directeur principal, Politiques économiques, financières et fiscales The Canadian Chamber of Commerce | La Chambre de commerce du Canada 420 – 360 rue Albert Street | Ottawa, ON K1R 7X7 Tel.: 613.238.4000 (284) | Fax: 613.238.7643 Chamber.caChamber.ca |@WorkTwitterAccount | @CdnChamberofCom | facebook.com/CanadianChamberofCommerce@CdnChamberofComfacebook.com/CanadianChamberofCommerce

37. QE: Quadrupling the Monetary base ($US, billions, 2003-2013)

38. Excess liquidity: distortions? Cash already in the system Source: EDC Economics Cash hoarding Cash injection