1. Outlook and Forecast Canada and the Global Economy Hendrik Brakel Economic and Political Intelligence Centre Export Development Canada October 2013

2. 2 GEARING UP for Growth

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

4. US Housing: Back to balance! (Surplus units, thousands) 4 Source: EDC Economics

5. US housing: gaining strength (Housing starts SAAR, ‘000 units) 5 Sources: US Census Bureau, Haver Analytics

6. Definite upward trend in home prices (US market, various sources, yoy %) 6 Sources: S&P, CoreLogic, FHFA, NAR, Haver Analytics

7. US Consumers: strong, stable trend! (Inflation-adjusted retail sales, $M) 7 Source: Federal Reserve Bank of St. Louis 4%

8. Cash & near-cash, US corporations, $B Source: Federal Reserve Board, Haver Analytics

9. US spare capacity close to peak (Utilization of existing industrial capacity, %) 9 Sources: US Federal Reserve Board, Haver Analytics

10. Tighter capacity spurring investment (Capacity utilization, % and investment, yoy) 10 Sources: US Federal Reserve Board, BEA, Haver Analytics

11. Underlying growth, recovery-style (US GDP, chained $2005, %) 11 Source: BEA, Haver Analytics

12. Euro-Area Recession: Interminable? (Euro Area-17 GDP, % SAAR) 12 Source: Eudata

13. Sign of moderating concern? (10-yr sovereign bond yields, %) 13 Sources: S&P, CoreLogic, FHFA, NAR, Haver Analytics

14. Japan: Hope in recent policy moves? (GDP, SAAR, %) 14 Sources: Cabinet Office of Japan, Haver Analytics

15. BRIC Economies: Slowing? (GDP, % yoy, quarterly SAAR) 15 Sources: Country statistical agencies, Haver Analytics

16. QE Unwind Causing Trouble…

17. QE3: Where’s the Money??

20. Liquidity distortions? Cash already in the system Cash injection

21. Stockmarkets % Change between QE1 Announcement and End 2012

22. Bond Spreads % Change between QE1 Announcement and End 2012

23. Now, a normalization? Normal Flows

24. Stockmarkets % Change between QE1 Announcement and End 2012

25. Bond spreads % Change between QE1 Announcement and End 2012

26. Who is at risk?? EDC Liquidity Flight Vulnerability Ranking Average Annual Bank credit growth 2009-2012 (%) Rank Average CAB 2009- 2012 (% of GDP) Rank Portfolio Flows (2009-2012) as % of 2012 GDP Rank Turkey126.072 (6.18) 38.0% 2 Sri Lanka217.826 (4.27) 65.6% 8 India317.307 (3.72) 104.0% 10 Poland47.9721 (4.38) 57.6% 3 Vietnam523.833 (0.80) 172.9% 13 Mexico613.9310 (0.62) 196.4% 5 Dominican Rep712.6312 (7.21) 10.2% 23 Argentina830.441 0.70 222.4% 14 Indonesia921.914 0.04 213.3% 12 Brazil1018.765 (2.06) 141.1% 19 South Africa115.3322 (4.11) 83.7% 11 Costa Rica129.0317 (4.03) 91.7% 16 Colombia1315.788 (2.78) 12-0.2% 24 Kazakhstan148.8618 2.41 247.2% 4 Morocco158.7220 (7.12) 2-1.4% 26 South Korea163.5725 3.25 2510.2% 1 Ukraine172.0428 (4.56) 41.0% 20 Peru1812.1513 (2.16) 13-3.4% 28 Thailand1913.3211 3.47 261.6% 17 Romania202.2127 (4.25) 71.0% 21

27. Canadian dollar outlook 27

28. Canadian consumer debt: piling up (consumer debt as a share of disposable income, %) 28 Source: Statistics Canada

29. Uh-oh, a Canadian housing bubble? (Housing starts SAAR, ‘000 units) 29 Sources: CMHC, Haver Analytics

30. Shift to Investment NR Can assessment 600 resource-sector projects… …estimated cost: $650 billion Large draw on labour force All regions participate True North: next frontier NR Can assessment 600 resource-sector projects… …estimated cost: $650 billion Large draw on labour force All regions participate True North: next frontier

31. Emerging Market Trade Booming (Emerging market share of total merchandise exports, %) 31 Sources: Statistics Canada, EDC Economics

32. Trade’s ‘Forgotten Parallel Universe’ (Foreign affiliate sales indexes, 2000=100) 32 Sources: Statistics Canada, EDC Economics

33. 33 Europe - Foreign Affiliate Sales vs. Direct Exports Source: Statistics Canada. Table 376-0061 - Foreign affiliate trade statistics, Canadian operations abroad, by countries, annual, CANSIM (database).

34. A force to be reckoned with (Merchandise trade vs. foreign affiliate sales, non-OECD) 34 Sources: Statistics Canada, EDC Economics

35. Labour force in trouble (Estimated labour force aged 15-64) 35 Sources: Statistics Canada, Haver Analytics, EDC Economics

36. Labour force population in trouble (Statistics Canada M2 projection, population 15-54) 36 Sources: Statistics Canada, Haver Analytics; based on 1988-96 trends

37. Estimated strain: unemployment (Estimated unemployment rate, % of labour force) 37 Sources: Statistics Canada, Haver Analytics, EDC Economics

38. Most Pressing Challenge Companies Face 38 Sources: Statistics Canada, Haver Analytics, EDC Economics

39. Labour Market Conditions (the ability of companies to attract and retain workers) 39

40. Does your company face immediate labour and/or skills shortage today? 40 Sources: Statistics Canada, Haver Analytics, EDC Economics

41. Companies facing labour shortages by province 41 Sources: Statistics Canada, Haver Analytics, EDC Economics

42. Occupations with labour shortages 42

43. A Historic Shortage?  Overall in Canada, 220K job vacancies for 1.31M unemployed, 17.1M employed  Canada’s 1.3% vacancy rate near historic lows  In the US, 3.7M vacancies for 136.3M employed  US 2.7% vacancy rate relatively high In both Canada and the US, little evidence of a labour shortage at the National level, however certain regions and industries as tight as pre-crisis period.

44. A Worsening Skills Shortage  Causes:  The Knowledge Economy  Technology and automation  Structural growth in certain skills and occupations  Rising demand for communication and social skills  Demographics and Regional industries  Immigration and restrictions on occupational entry  Schools and universities not adapting  But…Do businesses share responsibility??

45. A Skills shortage or a Training shortage?  Dr. Peter Capelli at Wharton: real culprits are employers themselves.  With an abundance of workers to choose from, employers are demanding more of job candidates than ever before.  Must be able to fill a role right away, without any training or ramp-up time.  Jobs can be organized in many different ways so that candidates who have very different credentials can do them successfully.  Only 10% of the people in IT jobs during the Silicon Valley tech boom of the 1990s, for example, had IT-related degrees.  Is a master’s necessary or could someone with a little training do the job pretty well?  Need to focus internally  In the US, apprenticeship and management training programs have largely disappeared  Young people taking unpaid internships  In some large organizations a staggering two thirds of vacancies staffed externally  Not enough on-the-job education: Organize work so that employees are given projects that help them learn new skills

46. A Skills shortage or a Training shortage?  Dr. Peter Capelli at Wharton: real culprits are employers themselves.  With an abundance of workers to choose from, employers are demanding more of job candidates than ever before.  Must be able to fill a role right away, without any training or ramp-up time.  Jobs can be organized in many different ways so that candidates who have very different credentials can do them successfully.  During the Silicon Valley tech boom of the 1990s, Only 10% of the people in IT jobs had IT- related degrees.  Is a master’s necessary or could someone with a little training do the job pretty well?  Need to focus internally, succession planning  In the US, apprenticeship and management training programs have largely disappeared  Young people taking unpaid internships  In some large organizations a staggering two thirds of vacancies staffed externally  Not enough on-the-job education: Organize work so that employees are given projects that help them learn new skills

47. Possible Strategies for Coping with a Labour/Skills Shortage  Short-term Strategies  Increase pay and benefits  Increase work hours and productivity of existing worker  More focused employee training  Flexible work arrangements, use of technology  Medium-Long Term  Bring back aspects of apprenticeship for specialized niches  Work with educational institutions  Better integration of immigrants, recognition of foreign credentials  Redefine workforce to adopt more external talent  Use of outsourcing, freelancing for core functions  Partnership and Joint Ventures  Direct Investment Abroad – Access talent pool overseas

48. Visit us at www.edc.ca/economics Any Questions?