Monthly Economic Monitor - Economics and Strategy - National Bank
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Monthly Economic Monitor
Economics and Strategy
September 2020
Summary
By Matthieu Arseneau and Jocelyn Paquet
The global economic revival has continued in recent weeks. Progressive reopening in a number of countries has allowed
many people to go back to work and a number of industries to return to a more normal pace of production. The economic
rebound was expected, given substantial pent-up demand and the considerable assistance provided by many
governments to support household incomes. The real question remains the longer term. The answer will depend very much
on the path of the pandemic. A complete return to normal will most certainly have to wait for an effective vaccine. Until then,
support from governments and central banks will be key to minimizing job losses and stimulating revival. Taking into account
the stronger-than-expected recovery in the U.S., and assuming a continuation of government and monetary stimulus, we
have decided to revise our world growth forecast for this year from -4.0% to -3.7%. We expect a 4.9% rebound in 2021.
More than one observer has been surprised by the speed at which the U.S. economy has got back on its feet after the Covid-
19 shock. Retail sales, new-home sales, existing-home sales, housing starts and durable-goods orders have all surprised on
the upside and are now close to or above their pre-crisis levels. But how is such a comeback possible when employment is
still down 7.6% from February? The answer is very simple. Though job-market losses have resulted in an unprecedented drop
in worker earnings, that drop has been more than offset by the emergency assistance deployed by the U.S. Congress. The
Federal Reserve also deserves a share of the credit for the state of the economy. Its response to the crisis was rapid,
substantial and diversified, and its actions to ease financial conditions greatly attenuated the financial hits from shutdown
of the economy. Given the recent performance of the U.S. economy and the Fed’s proactive attitude, we have revised up
our forecast of U.S. GDP in 2020, from a contraction of 5.2% to a contraction of 4.0%. That said, our outlook remains cautious
in the face of the many downside risks to our baseline scenario.
In Canada, economic indicators such as retail sales, home sales and housing starts have continued to surprise on the upside.
But the situation is far from back to normal. First, demand had been pent up during the spring shutdown. In addition,
households benefited from provisions for deferral of debt repayments and extraordinarily generous income-support
programs that more than offset the losses of employment earnings. Though the vigour of the job-market rebound is
impressive, the road ahead remains formidable. The remaining shortfall in employment relative to the pre-Covid peak is
comparable to the losses in the devastating recession of the early 1980s. For this reason, the government has opted for a
gradual reduction of its generosity that should forestall a short-term backlash in consumer spending. Given the faster-than-
expected rebound of the economy in these last months and recent announcements concerning financial assistance to
households, we have brightened our forecast of 2020 Canadian GDP, from a contraction of 7.1% to a contraction of 5.7%.Monthly Economic Monitor
Economics and Strategy
The economic rebound was expected, given substantial pent-up
World: Continuing recovery demand and the considerable assistance provided by many
The global economic revival has continued in recent weeks. governments to support household incomes. The real question
Progressive reopening in a number of countries has allowed many remains whether the recovery can be sustained. The answer will
people to go back to work and a number of industries to return depend very much on the path of the pandemic, and here the
to a more normal pace of production. Some sectors, where the news is mixed. After a few months of lower incidence, daily new
rebound of demand was more pronounced, even had to work cases have jumped in some European countries such as Spain
harder than usual to make up for time lost in shutdowns. So it is and France, where the daily numbers continue to rise.
no surprise that the latest Markit data show an acceleration of
Eurozone: Marked resurgence of Covid-19
international private-sector expansion in August. The PMI of 52.2 Daily confirmed new cases, 7-day moving average
overall in the advanced economies was about the same as the 10,000
52.9 of the emerging economies, with wide variances among
9,000 ESP
countries. The possible explanations for the divergences among
countries range from seriousness of the epidemic, to degree of 8,000
exposure to more-affected sectors like tourism, to the heft of the 7,000
FRA
fiscal and monetary responses of governments and central 6,000
banks.
5,000
World: Expansion of the global private sector accelerated in August 4,000
Markit composite PMI
Contraction Expansion 3,000
Japan
2,000 GBR
COVID low
Spain ITA
August 1,000 DEU
Australia
0
Italy
2020M02 2020M03 2020M04 2020M05 2020M06 2020M07 2020M08 2020M09
France NBF Economics and Strategy (source: Johns Hopkins CSSE)
Advanced econ.
Elsewhere in the world, the situation remains worrisome in Israel,
World
Brazil, the U.S., India and Mexico.
Emerging econ.
Germany
Average daily new Covid‐19 cases per million population
United States
China March April May June Last 28 Days Last 7 Days
United Kingdom Index
Israel 19.9 40.8 4.2 31.5 203.2 286.8
0 10 20 30 40 50 60 70
Spain 66.2 83.8 18.0 7.0 154.7 191.5
Brazil 0.9 12.8 64.9 139.1 183.2 161.0
NBF Economics and Strategy (source: Markit via Refinitiv)
United States 18.5 89.4 71.1 85.2 131.5 117.8
International trade also rebounded strongly in June, setting the France 25.7 58.0 9.9 4.4 67.1 102.4
India 0.0 0.8 3.6 9.5 52.1 61.0
table for solid economic expansion in Q3
Belgium 35.6 102.8 27.4 8.8 43.6 43.5
Mexico 0.3 4.7 18.0 35.3 42.4 42.4
World: International trade recovering from a sharp drop
Volume international trade. Last observation June 2020 Netherlands 23.7 52.0 13.4 7.5 34.2 41.0
Switzerland 61.8 50.0 4.8 3.3 32.5 39.9
130
% Index Portugal 23.5 57.5 23.6 31.5 26.9 35.0
125
120
Austria 36.4 19.5 4.6 3.8 29.6 33.7
115 United Kingdom 11.9 71.7 49.2 13.5 20.2 29.9
Index (R) 110 South Africa 0.7 2.4 14.7 66.6 45.6 29.7
105 Denmark 15.9 36.2 14.0 6.3 20.3 27.8
100
+7.6%
Italy 55.8 54.9 14.7 4.2 16.5 22.6
8 95
6 90
Norway 27.5 19.0 4.2 2.7 12.1 19.5
4 % m/m change (L) 85 Turkey 5.2 42.2 16.7 14.2 16.7 19.3
2
80 Sweden 14.1 55.0 52.5 102.0 21.0 16.7
0
-2
Germany 27.6 36.3 7.9 4.8 15.0 15.0
-4 Canada 7.2 40.4 32.4 12.0 11.5 12.7
-6 Finland 8.2 21.5 10.9 2.1 4.7 6.2
-8
-10
Japan 0.4 3.2 0.7 0.5 6.4 4.3
-12 South Korea 4.2 0.6 0.5 0.9 4.7 3.5
-14 Australia 5.7 2.9 0.6 0.9 6.5 3.1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
NBF Economics and Strategy (source: CPB Netherlands Bureau for Economic Policy Analysis)
China 0.1 0.0 0.0 0.0 0.0 0.0
NBF Economics and Strategy (data via Johns Hopkins CSSE)
2Monthly Economic Monitor
Economics and Strategy
Though the resurgence of cases is certain to slow the recovery in World: Government assistance increasingly costly
Ratio of net debt to GDP, advanced economies
the countries most affected, we think its overall economic hit will
be much smaller than that of earlier this year, since the second 110
Percentage points %
wave at this point looks to be less deadly than the first. This is 100
93.9%
especially true in advanced economies, where although deaths 90
are on the rise, the fatality rate among declared cases is much Net debt as %
of GDP (R) 80
20
lower than in the first wave. Seniors and others at higher risk are +17.5 p.p.
70
now better protected. Thus, the newly infected tend to be 16
60
younger and healthier people showing fewer symptoms and 12
50
therefore putting less pressure on health care resources. 8
40
Change from
World: A less deadly second wave? 4 previous year (L) 30
New cases vs. deaths, 7-day moving average, U.S., Europe and Canada combined
0
5,500 110,000
-4
5,000 100,000
-8
4,500 90,000 1990 1995 2000 2005 2010 2015 2020
Confirmed NBF Economics and Strategy (source: IMF)
4,000 cases (R) 80,000
3,500 70,000 China, meanwhile, has adopted a budgetary strategy centred
3,000 60,000 not on workers (demand) but on businesses (supply). The
2,500 50,000 cornerstone of its stimulus effort are extensive commercial loan
2,000 40,000 programs. The goal is to save as many businesses as possible to
1,500
Confirmed
30,000
support employment over the longer term. It’s still too soon to
deaths (L)
gauge the relative success of this approach but its
1,000 20,000
characteristics are already discernible in the data. Chinese
500 10,000
consumers, having received less direct assistance from
0 0
2020M02 2020M03 2020M04 2020M05 2020M06 2020M07 2020M08 2020M09 government, seem to be having more of a struggle to recover
NBF Economics and Strategy (source: Johns Hopkins CSSE) from the crisis. In July, when European and U.S. retail sales were
back to their pre-crisis levels, Chinese retail sales were still 6.3%
If this trend continues, governments could tolerate more daily
below their February peak. Chinese industrial production, on the
new cases without recourse to widespread shutdowns, which
other hand, was up 4.8% from a year earlier, well ahead of the
would be good news for the economy. But that doesn’t mean a
advanced economies.
resurgence of the virus would not affect economic output. Even
without strict lockdowns, households in the most affected areas World: Different approaches, different results
would still tend to redouble their caution (i.e. reduce their
Retail sales Industrial production
spending), and that would affect many industries. Thus a
complete return to normal will have to wait for an effective 104
February 2020 = 100
15
% change from year earlier
vaccine. 102 U.S.
10
100
Until then, support from governments and central banks will be 98 Euro 5 CN
key to minimizing job losses and stimulating revival. Most Western 96
0
94
governments have been supporting personal incomes via wage CN*
-5
92
subsidies and supplemental unemployment benefits. These U.S
90
-10
measures have certainly borne fruit to date, but their cost has 88 Euro
become monumental. Back in June the IMF was projecting an 86
-15
increase of 17.5 percentage points in the net-debt-to-GDP ratio 84 -20
of the advanced economies alone. Since then a number of new 82
-25
80
programs have been announced (e.g. in Germany and France),
78 -30
suggesting upward revision of that increase. In the short term this 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2017 2018 2019 2020
colossal effort should greatly reduce the impacts of the crisis * Seasonally adjusted by NBF
NBF Economics and Strategy (data from Bloomberg)
while slightly handicapping future growth.
Monetary policy, meanwhile, remains highly accommodative
almost everywhere in the world. The central banks that still had
room to manoeuvre before the arrival of the new coronavirus did
not hesitate to cut their policy rates. Those already at the lower
bound launched substantial asset-purchase and/or subsidized-
loan programs. These actions eased financial conditions,
3Monthly Economic Monitor
Economics and Strategy
reduced the cost of financing for many businesses and supported U.S.: An economy recovering faster than expected
Citi Economic Surprise Index
equity markets. At this writing the MSCI World Index had made up
almost all its losses from the pandemic. 280
Index
240
World: Equity markets supported by central banks
MSCI World Index 200
160
700
Index
120
680
660 80
640 40
620 0
600
-40
580
-80
560
-120
540
-160
520
2004 2006 2008 2010 2012 2014 2016 2018 2020
500 NBF Economics and Strategy (data via Refinitiv)
480
460
The New York Fed Weekly Economic Index, another closely
440
watched indicator, combining daily or weekly data from 10 high-
2018 2019 2020 2021 frequency indicators, also shows a good advance.
NBF Economics and Strategy (data via Refinitiv)
U.S.: Activity chugging back up
Taking into account the stronger-than-expected recovery in the New York Fed Weekly Economic Index
U.S. (see below), and assuming a continuation of government and 3
monetary stimulus, we have decided to revise our world growth 2
Index
forecast for this year from -4.0% to -3.7%. We expect a 4.9% 1
0
rebound in 2021.
-1
-2
-3
World Economic Outlook -4
-5
2019 2020 2021 -6
-7
Advanced Economies 1.7 -5.6 4.1
-8
United States 2.3 -4.0 3.0 -9
Eurozone 1.2 -7.7 5.7 -10
Japan 1.0 -5.3 2.5 -11
UK 1.3 -9.9 6.4 -12
2020M01 2020M02 2020M03 2020M04 2020M05 2020M06 2020M07 2020M08 2020M09
Canada 1.7 -5.7 4.1 NBF Economics and Strategy (data via Fred database)
Australia 1.8 -4.0 2.8
Korea 1.9 -1.1 3.3 But how is such a comeback possible when employment is still
down 7.6% from February?
Emerging Economies 3.8 -2.5 5.4
China 6.1 2.1 7.8 U.S.: A labour market far from full recovery
Employment, % change from previous peak
India 5.0 -5.3 7.7
Mexico -0.1 -9.6 3.6 2
% change from previous peak
1
Brazil 1.1 -6.2 3.2
0
Russia 1.2 -5.1 3.4 -1
-2
World 3.0 -3.7 4.9 -3
NBF Economics and Strategy (data via NBF and Conensus Economics) -4
-5
-6
U.S.: Two steps forward, one step back -7
-8
More than one observer has been surprised by the speed at which -9
-10
the U.S. economy has got back on its feet after the Covid-19 -11
1953 1957 1960
1970 1974 1980
shock. The Citi Economic Surprise Index is at stratospheric heights -12 1981 1990 2001
2008 2020
after retail sales, new-home sales, existing-home sales, housing -13
-14
starts and durable-goods orders all surprised on the upside and -15 Months after peak
are now close to or above their pre-crisis levels. 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
NBF Economics and Strategy (Statistics Canada data)
4Monthly Economic Monitor
Economics and Strategy
The answer is very simple. Though job-market losses have U.S.: Fed actions helped ease financial conditions
Goldman Sachs Financial Conditions Index
resulted in an unprecedented drop in worker earnings, that drop
has been more than offset by the emergency assistance 102.0
Index
deployed by the U.S. Congress. The large increase in federal 101.6
transfers has actually increased personal income, a startling 101.2
development during a recession.
100.8
U.S.: Washington to the rescue 100.4
Change from February 2020 in total income, Government transfers as % of total personal income 100.0
employment income and government transfers
99.6
3,500 32
US$ billion %
3,000
99.2
30
2,500 28 98.8
2,000 26 98.4
Transfers
1,500 24 98.0
2019Q4 2020Q1 2020Q2 2020Q3
1,000 22 NBF Economics and Strategy (data via Bloomberg)
Total
500 20
Encouragingly, the Fed says its stimulus measures are there to
0 18
stay – that policy rates are likely to remain on the floor until the
-500 16
Wages central bank is “on track to achieve [its] maximum employment
-1,000 14
and price stability goals,” and asset purchases likely to continue
-1,500
2019M11 2020M01 2020M03 2020M05 2020M07
12
2005 2010 2015 2020
“at least at the current pace” to help sustain smooth market
NBF Economics and Strategy (data via Refintiv)
functioning.
The strong comeback of household consumption is due in large The central bank’s new monetary policy framework, providing for
part to this increase in income. Despite residual weakness in flexible targeting of average inflation over time, is also likely to
service industries due to physical distancing requirements, total result in policy that is more accommodative for a longer period.
personal consumption expenditures, which in the U.S. account for In a statement at the time of the Jackson Hole symposium in late
about two-thirds of GDP, is now only 4.8% below its pre- August, the Fed said that “following periods when inflation has
pandemic peak after a gain of 16.4% from April to July. been running persistently below 2 percent [as at present],
appropriate monetary policy will likely aim to achieve inflation
U.S.: Consumption supported by government benefits moderately above 2 percent for some time.” So 2% inflation
Real personal consumption expenditure since July 2019
remains the goal, but it will now be considered in a longer-term
108
Index
perspective. The Fed will no longer ignore a past inflation deficit.
106 Goods
104 Given the recent performance of the U.S. economy and the Fed’s
102 proactive attitude, we have revised up our forecast of U.S. GDP
100
in 2020, from a contraction of 5.2% to a contraction of 4.0%. That
98 -4.8%
96
said, our outlook remains cautious in the face of the many
Total
94
downside risks to our baseline scenario.
92
90 Services U.S.: Confidence undermined by expiry of public assistance programs
% of survey respondents expecting an increase in income minus % expecting a decrease in next 6 months
88
86 28
%
84 24
82
20
80
16
78
2019M07 2019M09 2019M11 2020M01 2020M03 2020M05 2020M07
12
NBF Economics and Strategy (data via Refinitiv)
8
The Federal Reserve also deserves a share of the credit for the 4
state of the economy. Its response to the crisis was rapid, 0
substantial and diversified, and its actions to ease financial -4
conditions greatly attenuated the financial hits from shutdown of -8
the economy. -12
-16
-20
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
NBF Economics and Strategy (source: Conference Board via Refinitiv)
5Monthly Economic Monitor
Economics and Strategy
The most important of these lies in the ongoing Washington If the U.S. manages to navigate these shoals successfully,
negotiations over a new fiscal package. With many support economic recovery is likely to continue, though more slowly than
programs having expired July 31, many people who have lost their in recent weeks.
jobs could be hit hard if Congress does not soon reach
agreement on continued support. Canada: Unprecedented conditions
The most recent news from this front is not very encouraging. The The second-quarter economic data released in late August were
two major parties have yet to agree on amounts to be made at once terrifying and reassuring. Terrifying, because they
available. Many Republicans, faced with the huge cost of detailed a quarterly contraction that will go down as the worst
measures applied to date, seem now to favour greater restraint, ever (−38.6% annualized, four times the previous record of −8.7%
while Democrats take a more maximalist position. Under these in the financial crisis of 2008-09). Reassuring, because the
conditions, new legislation may not become law until after the monthly breakdown suggests a solid May and June rebound from
presidential election. the abyss of April. Nevertheless, the hit to the economy from the
pandemic is greater to date in Canada than in the U.S., judging
U.S.: Cost of stimulus rattles some elected officials
Federal budget balance as % of GDP by the preliminary estimate for the month of July. A stricter
8
lockdown in Canada resulted in a deeper contraction, and
% of GDP
although most restrictions have been lifted, the Canadian
4
economy lags in its recovery.
0
Canada: GDP recovery lags the U.S.
-4 Real GDP % change from previous peak
2
-8 % change from previous peak
CAN 2008 CAN 1981 CAN 1990
0
-12
-2
-16
-4
U.S. 2020
-20 -6
CAN 2020
-24 -8
-10
-28
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
-12
NBF Economics and Strategy (data from OMB and https://www.measuringworth.com/datasets/usgdp/)
-14
Uncertainty about the next round of federal stimulus is not the -16
only cloud on the horizon. The path of economic revival will also -18
depend greatly on the evolution of the pandemic. Here at least, Months following previous peak
-20
things seem to be improving after some difficult weeks. But 5 10 15 20 25 30 35 40 45 50
NBF Economics and Strategy (data via Refinitiv and Statistics Canada)
recovery will be incomplete until a vaccine has become available.
U.S.: A slow improvement in the Covid landscape
In the labour market, however, advantage Canada. Its loss of
Daily changes in new cases and active cases, 7-day moving average jobs has so far been smaller relative to the contraction of output.
4,000
Thousands Thousands Canada: Employment recovery leads the U.S.
3,500 Employment, % change from previous peak
Active cases
(R) 3,000 2
% change from previous peak CAN 2008 CAN 1981 CAN 1990
2,500
70 0
2,000
60 -2
1,500
50 -4
New cases 1,000
CAN 2020
(L) -6
40
500
U.S. 2020
30 -8
0
20 -10
Recoveries (L)
10 -12
0 -14
2020M2 2020M3 2020M4 2020M5 2020M6 2020M7 2020M8 2020M9
NBF Economics and Strategy (source: Johns Hopkins CSSE) -16
Months following previous peak
-18
We are also keeping an eye on the rise of social tensions in the 5 10 15 20 25 30 35 40 45 50 55 60
U.S., which could constitute a risk in the event of a very close result NBF Economics and Strategy (data via Refinitiv and Statistics Canada)
in the November elections.
6Monthly Economic Monitor
Economics and Strategy
Though the vigour of the job-market rebound is impressive, Canada: Extraordinary support for households
Change in real earnings, change in real disposable income, rate of saving
employment is not back to normal. On the contrary, the road
ahead remains formidable. The shortfall in employment versus 30
% y/y %
the pre-Covid peak is similar to the losses in the devastating Rate of 25
saving (R)
recession of the early 1980s. Contrary to what one might think, the 20
employment losses are not limited to the sectors where physical
15
distancing is a factor, such as in accommodation and restaurant
10
services and information/culture/leisure. In every sector, 15.0
employment in August was down from February, attesting to Change in real 5
12.5
disposable
10.0 income (L)
much more widespread difficulties. Moreover, the losses do not 0
7.5
fully reflect the hit to the labour market. Some workers are 5.0
working fewer hours than before – hours worked in August were 2.5
0.0
down 8.6% from February while headcounts were down 5.7%. -2.5
-5.0 Change in real
Canada : Employment by sector -7.5
earnings (L)
-10.0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
% change between % change between
February and April February and August NBF Economics and Strategy (data via Statistics Canada)
All industries
Agriculture
‐15.7
‐7.3
‐5.7
‐9.4
While worries are growing about deterioration of public finances
Natural resources ‐7.4 ‐4.1 and the work disincentive induced by extraordinary assistance
Utilities ‐3.8 ‐1.4
Construction ‐21.2 ‐8.1 measures, recent federal government announcements of a
Manufacturing ‐17.3 ‐4.7
Wholesale and retail trade ‐20.2 ‐4.3
gradual withdrawal are a comfort to those apprehending an
Transportation and warehousing ‐13.9 ‐10.2 imminent hit to household incomes. In the U.S., reduction of
Finance, insurance, real estate, rental and leasing ‐3.6 ‐1.8
Professional, scientific and technical services ‐4.7 ‐1.2 extraordinary aid began in August; in Canada the aid was
Business, building and other support services ‐12.4 ‐8.1
Educational services ‐11.5 ‐2.4
extended into September. Subsequently it was announced that
Health care and social assistance ‐9.1 ‐2.1 the great majority of CERB recipients would move to employment
Information, culture and recreation ‐23.8 ‐12.9
Accommodation and food services ‐50.0 ‐21.1 insurance but with a guarantee of at least $400 in weekly income
Other services (except public administration) ‐22.7 ‐6.0
Public administration ‐2.5 ‐2.4
(a 20% reduction from the CERB of $2000 every four weeks). The
Full time
Part time
‐12.5
‐29.6
‐6.1
‐3.9
minimum insurable hours were also considerably reduced (to 120
Hours worked ‐27.7 ‐8.6 hours compared to the usual 420 to 700 hours depending on
NBF Economics and Strategy (Statistics Canada data) region) to minimize the number of people left out. Self-employed
workers, ineligible for employment insurance, will benefit from a
Labour-market difficulties notwithstanding, some economic
new program that also ensures a minimum income of $400 a
indicators show a return to normal. Among them are retail sales,
week. But all this assumes that the minority government will
which in July topped those of February. This recession is atypical
survive its September 23 throne speech.
in the arrival of massive government stimulus simultaneously with
contraction of the economy. Typically there is initial uncertainty Canada: Debt service at a 16-year low as % of disposable income
about the onset of a recession and its severity. This time, since it Household debt service (capital and interest)
was governments that decreed the shutdown of nonessential 15.0
% %
services, they knew that extraordinary assistance would be 14.5
14.0
required to palliate the hit to household incomes. Without 13.5
government intervention, the shock to households would have 13.0
been unprecedented, as attested by the record contraction of 12.5
Total as % of 12.0
real earnings in the second quarter. Yet real disposable income, disposable
8 11.5
income (R)
i.e. income after transfers and income taxes, rose at an 6 11.0
unequalled rate. This was because the Canada Emergency 4
10.5
Response Benefit (CERB) paid some workers an amount 2
Mortgage (L)
exceeding what they had been earning from employment, in part 0
by authorizing recipients to earn up to $1000 from employment -2
-4
without reduction of the benefit amount. Some $46 billion was
-6 Non-mortgage (L)
paid out to workers during the quarter when their loss of
-8
employment earnings amounted to only $21 billion. Other 1990 1995 2000 2005 2010 2015 2020
NBF Economics and Strategy (data via Statistics Canada)
benefits, including the Canada Emergency Student Benefit and
financial aid to seniors, added further to household disposable Another factor has helped protect households from the current
incomes. difficulties. No fewer than 775,000 mortgage borrowers have
availed themselves of provisions to defer mortgage payments
and 470,000 Canadians have taken advantage of provisions to
7Monthly Economic Monitor
Economics and Strategy
defer payments on credit cards or lines of credit. In the second Given the faster-than-expected rebound of the economy in
quarter, household outlays for debt service (payments of capital these last months and recent announcements concerning
and interest) declined 6.0%, a previously unheard-of financial assistance to households, we have brightened our
development. This decline together with income increases forecast of 2020 Canadian GDP from a contraction of 7.1% to one
reduced the debt-service ratio to the lowest since 2004. of 5.7%. This assumes that if there is a second wave of Covid-19,
the response to it will be more targeted than the general
These unprecedented conditions have contributed to the
lockdown decreed during the first wave. At this writing, the
resilience of the housing market to date. Starts in August
number of daily new cases is accelerating but still well below that
exceeded expectations for a fifth straight month, reaching a 13-
of the first wave, and compares favourably to the numbers for
year high of 265,000. July home sales topped by 12.5% the
other countries.
previous record set in April 2016. Does that mean the housing
market will be unscathed by the current recession? Not so fast. World: Country comparison of new Covid-19 cases, then and now
Weekly new cases per million population, worst week before June and current week, selected countries
Many housing starts were delayed by Covid-19, and summer
sales figures were certainly swollen by the demand pent up 400
Cases per million Worst week befor June
population
during the shutdown. In addition, the end of mortgage payment Current week
350
deferrals and the phased decrease in generosity of income
support programs while the labour market is still convalescing 300
could make for obstacles in 2021. Immigration slowdown could
250
also bring headwinds to the real estate market.
200
Canada: Below-target admissions of immigrants
Monthly admissions of permanent residents vs. target range, 2020
150
32
30 000 persons immigration target 100
28
26 50
24
0
22 ISR ESP BRA FRA USA IND NLD BEL AUT PRT CHE MEX DEN GBR ZAF ITA SWENOR TUR CAN DEU FIN JAP KOR AUS CHN
20 NBF Economics and Strategy (data from Johns Hopkins CSSE)
18
16
14
Admissions
12
10
8
6
4
2
2020M1 2020M2 2020M3 2020M4 2020M5 2020M6 2020M7 2020M8 2020M9
NBF Economics and Strategy (data from https://www.canada.ca/en/immigration-refugees-citizenship/news/notices/supplementary-
immigration-levels-2020.html and https://open.canada.ca/data/en/dataset/f7e5498e-0ad8-4417-85c9-9b8aff9b9eda)
8Monthly Economic Monitor
Economics and Strategy
United States
Economic Forecast
Q4/Q4
(Annual % change)* 2017 2018 2019 2020 2021 2006 2019 2020 2021
Gross domestic product (2012 $) 2.3 3.0 2.2 (4.0) 3.0 2.3 (3.2) 2.2
Consumption 2.6 2.7 2.4 (4.8) 2.8 2.5 (4.2) 2.2
Residential construction 4.0 (0.6) (1.7) 0.0 0.9 1.6 (1.3) 1.5
Business investment 3.7 6.9 2.9 (5.0) 2.4 1.4 (4.6) 3.0
Government expenditures 0.9 1.8 2.3 2.1 1.6 3.0 1.7 1.5
Exports 3.9 3.0 (0.1) (10.6) 8.3 0.4 (5.7) 3.5
Imports 4.7 4.1 1.1 (10.8) 7.7 (1.9) (4.5) 3.0
Change in inventories (bil. $) 15.8 53.4 48.5 (88.7) 60.5 (1.1) 84.1 51.6
Domestic demand 2.5 3.0 2.3 (3.4) 2.4 2.4 (3.2) 2.2
Real disposable income 3.1 3.6 2.2 2.5 (1.8) 1.6 -2.5 4.2
Payroll employment 1.6 1.6 1.4 (5.7) 2.5 1.4 -5.5 2.6
Unemployment rate 4.4 3.9 3.7 8.9 7.7 3.5 8.9 7.2
Inflation 2.1 2.4 1.8 1.2 1.9 2.0 1.0 2.0
Before-tax profits 4.5 6.1 0.3 (12.6) 12.0 1.3 -10.9 10.7
Current account (bil. $) (365.3) (449.7) (480.2) (466.7) (427.5) … ... ...
-304
* or as noted
Financial Forecast**
Current Q4 2019 Q4 2020 Q4 2021
8/07/20 Q3 2020 Q4 2020 Q1 2021 Q2 2021 2019 2020 2021
Fed Fund Target Rate 0.25 0.25 0.25 0.25 0.25 1.75 0.25 0.25
3 month Treasury bills 0.10 0.10 0.10 0.15 0.15 1.52 0.10 0.20
Treasury yield curve
2-Year 0.13 0.15 0.15 0.15 0.20 1.58 0.15 0.20
5-Year 0.23 0.30 0.30 0.35 0.40 1.69 0.30 0.50
10-Year 0.57 0.70 0.70 0.75 0.80 1.92 0.70 0.95
30-Year 1.23 1.45 1.50 1.55 1.60 2.39 1.50 1.65
Exchange rates
U.S.$/Euro 1.18 1.17 1.14 1.15 1.19 1.12 1.14 1.24
YEN/U.S.$ 106 105 103 106 108 109 103 109
** end of period
Quarterly pattern
Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021
actual actual actual forecast forecast forecast forecast forecast
Real GDP growth (q/q % chg. saar) 2.4 (5.0) (32.9) 32.8 3.6 2.1 2.0 2.4
CPI (y/y % chg.) 2.0 2.1 0.4 1.2 1.0 1.2 2.6 2.0
CPI ex. food and energy (y/y % chg.) 2.3 2.2 1.3 1.7 1.7 1.6 2.5 1.8
Unemployment rate (%) 3.5 3.8 13.0 10.0 8.9 8.4 7.9 7.4
National Bank Financial
9Monthly Economic Monitor
Economics and Strategy
Canada
Economic Forecast
Q4/Q4
(Annual % change)* 2017 2018 2019 2020 2021 2019 2020 2021
Gross domestic product (2012 $) 3.2 2.0 1.7 (5.7) 4.1 1.5 (3.9) 2.9
Consumption 3.7 2.2 1.6 (7.7) 4.3 1.7 (6.4) 3.7
Residential construction 2.2 (1.6) (0.6) (3.2) 2.8 4.3 (2.7) 0.0
Business investment 3.9 1.4 0.4 (9.7) 3.2 2.4 (6.8) 1.8
Government expenditures 2.9 3.4 1.7 (0.4) 3.0 1.8 0.1 3.0
Exports 1.4 3.1 1.3 (8.0) 6.5 0.2 (3.7) 3.5
Imports 4.2 2.6 0.6 (10.8) 6.8 0.5 (6.2) 4.0
Change in inventories (millions $) 17,951 13,025 15,077 (2,885) 9,250 9,362 11,000 8,000
Domestic demand 3.3 2.1 1.3 (5.6) 3.7 1.8 (4.4) 3.1
Real disposable income 4.0 2.0 2.8 6.9 (4.1) 3.1 1.7 0.1
Employment 1.9 1.3 2.1 (5.6) 3.3 1.8 (4.2) 2.2
Unemployment rate 6.3 5.8 5.7 9.8 8.9 5.7 9.5 8.6
Inflation 1.6 2.3 1.9 0.7 1.8 2.1 0.7 1.9
Before-tax profits 19.9 2.5 (0.1) (18.5) 13.1 5.5 (12.4) 8.5
Current account (bil. $) (60.2) (55.5) (47.0) (53.8) (55.0) .... .... ....
* or as noted
Financial Forecast**
Current Q4 2019 Q4 2020 Q4 2021
9/11/20 Q3 2020 Q4 2020 Q1 2021 Q2 2021 2019 2020 2021
Overnight rate 0.25 0.25 0.25 0.25 0.25 1.75 0.25 0.25
3 month T-Bills 0.15 0.15 0.15 0.15 0.20 1.66 0.15 0.20
Treasury yield curve
2-Year 0.26 0.25 0.30 0.30 0.30 1.70 0.30 0.35
5-Year 0.36 0.40 0.40 0.45 0.45 1.69 0.40 0.50
10-Year 0.55 0.60 0.65 0.70 0.70 1.70 0.65 0.80
30-Year 1.06 1.10 1.15 1.15 1.15 1.76 1.15 1.20
CAD per USD 1.32 1.34 1.36 1.34 1.32 1.30 1.36 1.28
Oil price (WTI), U.S.$ 37 39 37 40 43 61 37 49
** end of period
Quarterly pattern
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
actual actual forecast forecast forecast forecast forecast forecast
Real GDP growth (q/q % chg. saar) (8.2) (38.7) 45.3 4.2 2.6 3.0 2.8 3.2
CPI (y/y % chg.) 1.8 0.0 0.4 0.7 1.0 2.3 2.0 1.9
CPI ex. food and energy (y/y % chg.) 1.8 1.0 0.8 1.1 0.9 1.5 1.5 1.5
Unemployment rate (%) 6.3 13.0 10.3 9.5 9.2 9.0 8.8 8.6
National Bank Financial
10Monthly Economic Monitor
Economics and Strategy
Provincial economic forecast
2017 2018 2019e 2020f 2021f 2017 2018 2019e 2020f 2021f
Real GDP (% growth) Nominal GDP (% growth)
Newfoundland & Labrador 0.4 -3.5 4.0 -6.5 4.5 3.7 1.7 5.6 -10.1 9.7
Prince Edward Island 4.4 2.6 4.5 -4.2 4.0 5.3 4.2 6.7 -2.9 6.8
Nova Scotia 1.6 1.5 2.1 -4.4 4.0 3.2 3.3 3.7 -4.1 6.8
New Brunswick 2.2 0.8 0.1 -4.5 4.2 4.4 3.2 1.3 -3.1 5.8
Quebec 2.8 2.5 2.7 -6.3 4.5 5.0 4.8 4.4 -4.3 6.6
Ontario 2.9 2.2 1.6 -5.7 4.2 4.6 3.7 3.9 -4.2 5.8
Manitoba 3.1 1.3 1.0 -4.8 4.1 5.7 2.2 2.8 -4.3 5.9
Saskatchewan 1.7 1.3 -0.8 -5.9 4.7 5.1 1.4 0.0 -9.8 7.9
Alberta 4.8 1.6 -0.6 -7.0 4.1 9.2 3.8 1.6 -9.2 7.6
British Columbia 3.7 2.6 2.8 -4.6 4.0 7.1 4.5 4.2 -2.5 5.6
Canada 3.2 2.0 1.7 -5.7 4.1 5.7 3.9 3.6 -5.0 6.4
Employment (% growth) Unemployment rate (%)
Newfoundland & Labrador -3.6 0.4 0.8 -5.7 2.2 14.8 13.8 12.0 13.4 14.3
Prince Edward Island 3.0 3.0 2.6 -1.9 0.6 9.8 9.4 8.8 10.2 10.8
Nova Scotia 0.7 1.5 2.2 -5.2 3.2 8.4 7.5 7.2 10.0 9.8
New Brunswick 0.4 0.3 0.7 -3.0 1.8 8.1 8.0 8.0 9.6 9.2
Quebec 2.2 0.9 1.7 -4.9 3.2 6.1 5.5 5.1 9.1 8.1
Ontario 1.8 1.6 2.9 -5.6 3.0 6.0 5.6 5.6 9.8 9.5
Manitoba 1.6 0.6 0.9 -3.5 1.9 5.4 6.0 5.3 8.2 7.6
Saskatchewan -0.1 0.4 1.6 -5.0 2.4 6.3 6.1 5.4 8.6 7.5
Alberta 1.0 1.9 0.5 -6.9 4.2 7.8 6.7 6.9 11.3 9.4
British Columbia 3.7 1.1 2.6 -6.8 4.4 5.1 4.7 4.7 9.6 7.8
Canada 1.9 1.3 2.1 -5.6 3.3 6.3 5.8 5.7 9.8 8.9
Housing starts (000) Consumer Price Index (% growth)
Newfoundland & Labrador 1.4 1.1 0.9 0.6 0.5 2.3 1.7 1.0 0.2 1.9
Prince Edward Island 0.9 1.1 1.5 1.1 1.1 1.8 2.3 1.2 -0.2 2.5
Nova Scotia 4.0 4.8 4.7 4.5 4.2 1.1 2.2 1.6 0.3 2.6
New Brunswick 2.3 2.3 2.9 3.3 2.8 2.3 2.2 1.7 0.3 1.2
Quebec 46.5 46.9 48.0 49.8 43.0 1.1 1.7 2.1 0.7 1.8
Ontario 79.0 78.7 69.0 75.9 70.0 1.7 2.4 1.9 0.5 1.4
Manitoba 7.5 7.4 6.9 6.1 5.5 1.6 2.5 2.3 0.5 1.7
Saskatchewan 4.9 3.6 2.4 3.0 3.0 1.7 2.3 1.7 0.7 1.8
Alberta 29.5 26.1 27.3 22.2 23.6 1.5 2.5 1.7 1.4 2.2
British Columbia 43.7 40.9 44.9 37.8 34.0 2.1 2.7 2.3 0.8 1.8
Canada 219.7 212.8 208.7 204.2 187.7 1.6 2.3 1.9 0.7 1.8
e: estimate f: forecast
Historical data from Statistics Canada and CMHC, National Bank of Canada's forecast.
11Monthly Economic Monitor Economics and Strategy Economics and Strategy Montreal Office Toronto Office 514-879-2529 416-869-8598 Stéfane Marion Matthieu Arseneau Warren Lovely Chief Economist and Strategist Deputy Chief Economist Chief Rate Strategist, Economics and Strategy stefane.marion@nbc.ca matthieu.arseneau@nbc.ca warren.lovely@nbc.ca Paul-André Pinsonnault Marc Pinsonneault Taylor Schleich Senior Economist Senior Economist Associate, Rates Strategist, Economics and Strategy paulandre.pinsonnault@nbc.ca marc.pinsonneault@nbc.ca taylor.Schleich@nbc.ca Kyle Dahms Jocelyn Paquet Angelo Katsoras Economist Economist Geopolitical Analyst kyle.dahms@nbc.ca jocelyn.paquet@nbc.ca angelo.katsoras@nbc.ca General This Report was prepared by National Bank Financial, Inc. (NBF), (a Canadian investment dealer, member of IIROC), an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on the Toronto Stock Exchange. The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete and may be subject to change without notice. The information is current as of the date of this document. Neither the author nor NBF assumes any obligation to update the information or advise on further developments relating to the topics or securities discussed. The opinions expressed are based upon the author(s) analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein, and nothing in this Report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances. In all cases, investors should conduct their own investigation and analysis of such information before taking or omitting to take any action in relation to securities or markets that are analyzed in this Report. The Report alone is not intended to form the basis for an investment decision, or to replace any due diligence or analytical work required by you in making an investment decision. This Report is for distribution only under such circumstances as may be permitted by applicable law. This Report is not directed at you if NBF or any affiliate distributing this Report is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that NBF is permitted to provide this Report to you under relevant legislation and regulations. National Bank of Canada Financial Markets is a trade name used by National Bank Financial and National Bank of Canada Financial Inc. Canadian Residents NBF or its affiliates may engage in any trading strategies described herein for their own account or on a discretionary basis on behalf of certain clients and as market conditions change, may amend or change investment strategy including full and complete divestment. The trading interests of NBF and its affiliates may also be contrary to any opinions expressed in this Report. NBF or its affiliates often act as financial advisor, agent or underwriter for certain issuers mentioned herein and may receive remuneration for its services. As well NBF and its affiliates and/or their officers, directors, representatives, associates, may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. NBF and its affiliates may make a market in securities mentioned in this Report. This Report may not be independent of the proprietary interests of NBF and its affiliates. This Report is not considered a research product under Canadian law and regulation, and consequently is not governed by Canadian rules applicable to the publication and distribution of research Reports, including relevant restrictions or disclosures required to be included in research Reports.
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