The World Economy and BCpresented to

Mortgage Investment Association of BC

June 21, 2011 by

Bernie MagnanAssistant Managing Director and Chief Economist

1

Background

• Factors considered in Economic Forecast– Previously looked at United States and

Canadian Economies– Some attention paid to Japan and Europe– Now need to consider other major world

economies – especially European Union, BRIC countries (Brazil, Russia, India and China)

– Canadian Domestic Factors– Provincial Factors

2

Background (cont.)

• United States Still Biggest Economy - > $14 Trillion GDP

• Japan, Germany, South Korea, other Euro nations still impact world economy

• Increased interconnectivity of World Economies

• Sovereign Debt• Consumer Confidence• Residential and Commercial construction• Commodity Prices

3

Background (cont.)• Major Recession Factors

– Unregulated Lending in US Market – Especially Housing (Sub Prime, 100% Loans, ‘NINJA’ Loans, Extended Credit)

– Creation of Little Understood Structured Financial Products

– Lack of Financial Regulation

– Overbuilt US residential housing mkt (on spec)

– Sovereign debt/social support (especially in EU)

– US Budget and Current Account Deficits

– Repackaging of High-Risk Products

– Hedge and Derivative Calls

4

Real GDP (Projected Average Percentage Change)

-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%12.0%

2009 2010 2011 pro 2012 Fcst

US Canada Mexico JapanChina India Euro Area Britain

Source – Economic and Financial indicators – The Economist

5

Commodity Prices (2008/2009)

6

Commodity Prices (2010-11)

7

Canadian Economy

8

Canadian Economy

Positive Factors• 11 Years of Budget Surpluses• Budget Debt down by $90 Billion (to $458 Billion)• Debt-to-GDP Lowest Among G7 Countries• Strong Financial System• Stable Housing Market• Positive Immigration• Stimulus Spending ($60 Billion Over 2.5 Years)

9

G7 COMPARATIVE NET DEBT-TO-GDP RATIOSCANADA’S TURNAROUND - 2ND WORST TO BEST

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

Canada U.S. U.K. France Germany Japan Italy

1995 2008

Source: Department of Finance 6

Net Debt-to-GDP Ratio

10

G7 COMPARATIVE NET DEBT-TO-GDP RATIOSCANADA’S TURNAROUND (cont.)

Canadian Economy(cont.)

Negative Factors• Aging Demographic• Labour and Skills Shortages• Lack of Investment in Productivity and

Innovation• Canadian Dollar at Par With US $• $101 Billion Deficit Increase Over Two Years

12

Canadian Economic Issues

• Impact of World Financial Liquidity• Border Access

– Movement of Business Professionals– New Border Transportation Charges – Truck

and Rail– Increased Security Requirements

• Balance of Payments• Impact of US Economic Recovery• Commodity Pricing• Federal Budget

13

British Columbia Economy

14

Taxpayer Supported Debtas Per Cent of GDP and Per Capita

12%13%14%15%16%17%18%19%20%21%22% 19.1

20.621.3

20.6

18.2

16.114.4 14.0

13.316.2

17.5 17.8

Per Cent GDP

15

British Columbia Economy

Positive Factors• Low Cost of Electrical Energy• 2010 Olympics• Skilled Workforce• Gateway to Pacific Rim• Population In-migration• Natural Gas Play• Commodity Prices

16

British Columbia Economy (cont.)

Industry Outlooks• Forestry• Mining• Energy• Transportation and Warehousing• Finance and Real Estate• Health Care• Tourism

17

British Columbia Economy (cont.)

Statistics• Population Growth – 1.6%• Employment – Flat to Small Growth• Canadian Dollar Volatility - Par• Gas prices - Volatile• Lumber Prices - Variable• Inflation – 2.7%• Unemployment - 7.6%• Bank Rate – 1.0% (end of year)

18

Forecast

• Canada + 2.9%

• British Columbia + 2.4%

19

Vancouver Region Impacts

• ‘Downtown’ British Columbia

• Commodity Prices and World Demand

• In-migration

• Regional Growth Strategy– Land Availability– Demand/Densification– Industrial/Commercial Land Requirements– Transportation

Questions ???