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Global Economics
January 8, 2015
Global Forecast Update
New Year, New Outlook, New Risks
Global growth should average 3.3% in 2015, incrementally better than last
year’s 3.2% advance. The lack of traction reflects largely offsetting
developments. The cash flow boost to consumers and businesses
associated with the over 50% slide in the price of crude oil since mid-2014,
and the improving performances in a number of countries, most notably
the U.S., should reinforce stronger economic momentum internationally. At
the same time, production and capital spending cutbacks in many oilproducing countries around the world, the continuing slowdown in China,
the restraint underway in a number of structurally weak nations and
budgetary-challenged jurisdictions, as well as the increased volatility in
financial markets, will drag on growth.
Contents
Overview.............................. 1-2
Forecasts
International ...................... 3-4
Commodities........................ 4
North America...................... 5
Provincial ............................. 6
Financial Markets ............. 7-8
Despite the anticipated boost to global economic activity from substantially lower energy prices, including natural
gas, stock markets have broadly corrected, government bond yields in many countries have plunged to
historically low levels, and most currencies have weakened. The increased turbulence reflects increasing
concerns over the health of the global economy — the negative impact of sharply lower crude prices on oilproducing companies and countries, the growing strains in the euro zone aggravated by the upcoming Greek
elections, the numerous geopolitical challenges internationally, growing disinflationary pressures in certain
regions, and the potential destabilizing effects on many economies stemming from the anticipated tightening in
Fed monetary policy around mid-year. Expectations of wider interest rate differentials vis-à-vis the U.S. are
already witnessing increasing ‘safe-haven’ capital flows into higher-yielding U.S. dollar assets, and a
strengthening in the greenback to a multi-year high.
We expect global real GDP growth to average a slightly better but still moderate 3.6% in 2016. Oil prices should
move gradually higher, but remain supportive of somewhat stronger economic growth as energy-related
production and capital spending begin to rebound. Nevertheless, a broad-based and synchronized upturn
remains elusive, and susceptible to interruption from persistent geopolitical risks and chronically
underperforming economies.
For the time being, downside risks to the price of crude oil persist. More moderate demand for crude oil
internationally has been overwhelmed by increasing supply from producing nations around the world, a
development underpinned by the reluctance of Saudi Arabia to support prices through reduced OPEC output.
Eventually, strengthening global growth aided by lower oil prices will trigger increased oil demand, while
accelerated cutbacks in oil output and capital spending in most higher-cost oil producing nations will curb
supply. These adjustments will increasingly play out over the next couple of years.
Econometric models point to a progressive strengthening in global growth if the low level of crude oil prices is
sustained. However, the ultimate boost to economic growth depends upon a number of variables such as the
extent of the pass-through at gasoline pumps, and the degree to which production and capital spending are cut
by oil-producing nations. Accordingly, the transition period may be longer and the net growth impact less positive
until the uncertainty surrounding oil price developments is substantially reduced.
In this environment, headline inflation pressures will continue to moderate in response to the slide in energy and
other key commodity prices such as iron ore and copper. Government fiscal performances are at risk alongside the
plunge in nominal income growth, as are structurally weak countries — oil-producing nations such as Russia,
Venezuela, and Nigeria, for example — where acute currency weakness has already begun to aggravate inflationary
conditions. By contrast, in countries experiencing tightening labour markets, like the U.S., the U.K. as well as
Canada, underlying price trends are likely to be contained, or trend modestly higher.
Scotiabank Economics
Scotia Plaza 40 King Street West, 63rd Floor
Toronto, Ontario Canada M5H 1H1
Tel: 416.866.6253 Fax: 416.866.2829
Email: [email protected]
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank.
Opinions, estimates and projections contained herein are our own as of the date hereof and are
subject to change without notice. The information and opinions contained herein have been
compiled or arrived at from sources believed reliable but no representation or warranty, express or
implied, is made as to their accuracy or completeness. Neither Scotiabank nor its affiliates accepts
any liability whatsoever for any loss arising from any use of this report or its contents.
TM
Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Global Forecast Update is available on scotiabank.com, Bloomberg at SCOT and Reuters at SM1C
Global Economics
January 8, 2015
Global Forecast Update
The U.S. economy is expected to build upon its recent acceleration, with real GDP forecast to average 3.3% in 2015, the
strongest annual performance since 2004. A self-reinforcing cycle of strengthening consumer spending, increased hiring, and
expanded business investment is underway. Household spending power is being boosted by strengthening wage gains, and
supported by the sizeable reduction in gasoline prices. There is a considerable backlog of durable goods orders, particularly in
the large and broad transportation equipment sector, that should continue to underpin manufacturing activity. While near-term
risk points to stronger U.S. growth, a number of factors such as the sub-par rebound in housing activity, cautious bank lending,
and elevated personal debt levels among selected demographic groups, suggest a somewhat less vigorous rebound. While
reduced oil imports helped to narrow the U.S. trade deficit in November, the continuing appreciation of the U.S. dollar and
sluggish growth in many countries highlight the risk of an eventual deterioration in net exports (weaker export and stronger
import trends) which would dampen growth prospects.
Among the other advanced economies, the U.K. retains relatively solid forward momentum. Lower oil prices and rising wage trends
will give some added boost to personal consumption, while construction activity should continue to be supported by low interest rates
and capital inflows. A diversified economy will help keep Canada on a moderate, though weaker growth path. Gathering softness in
the resource-producing regions resulting from reduced export volumes coupled with declining terms of trade will be largely offset by
increasing activity in the manufacturing sectors in the central provinces that will benefit from the U.S. revival and a much lowervalued Canadian dollar. Domestic demand will be supported by continuing, albeit slower job growth, and low interest rates, though
high household debt will remain a drag on spending. Most provinces will focus on balance sheet repair.
Last year's spring VAT tax hike in Japan has undercut growth, with the new government planning to defer its next round. The euro
zone is registering little if any growth, with weakness evident in the larger economies. Both France and Italy have been slow to
implement pro-growth economic and fiscal reforms, while German trade has been affected by the slowdown in the Asia-Pacific region
and Europe, and by the sanctions on Russia in response to the confrontation over Ukraine. While all regions should benefit to varying
degrees from lower-priced oil, both the euro zone and Japan are likely to remain chronic underperformers in the absence of muchneeded reforms, increased fiscal stimulus, and even weaker exchange rates to bolster net exports. The upcoming Greek election
underscores the political risk and uncertainty that persists in a region where unemployment remains high, though any potential
negative impact on the euro zone’s integrity may be limited by banking sector safeguards introduced in recent years.
Growth in China continues to slow, though policymakers have implemented some measures recently — interest rate cuts and
increased spending — to prevent an even greater deceleration in output. Real GDP this year is expected to be around 7%, with
the pace of activity expected to moderate further in 2016. Even with continuing public sector investment, ongoing support from
consumer spending, and the significant benefits accruing to lower-priced oil imports, the softening in real estate activity
alongside the ongoing efforts to rein in lending highlight the risk of even slower growth and reduced demand for commodities.
India is expected to post slightly stronger economic gains going forward, with more upside risks due to lower oil prices and the
prospect of increased pro-growth economic reforms. Russia faces a much deeper downturn, with the decline in oil revenues,
biting trade sanctions, and sharply higher interest rates needed to reverse capital flows and support the ruble forcing big
adjustments to domestic spending and export earnings. Any additional sanctions imposed on Russia would risk an even greater
recession, and could trigger reciprocal sanctions directed to Europe and the West which would dampen global prospects even
further. Chronic economic problems will keep growth near recessionary levels in Brazil, though longer-term prospects should
improve alongside reforms that the newly elected government is expected to introduce. Economic growth throughout much of
Latin America will regain some momentum, balancing improving demand from the strengthening U.S. recovery against the
relative softness in Asia-Pacific trade and persistent weakness in commodity prices and investments.
The diverging economic performances around the world, coupled with the almost universal moderation in headline inflation, will
reinforce differing policy responses. The U.S. Fed is expected to begin raising short-term interest rates in the second quarter, while
the ECB will introduce a QE plan to purchase sovereign debt, and the Bank of Japan will expand upon its non-conventional bond
buying program. The Bank of England and the Bank of Canada will likely remain on the policy sidelines for longer given their
countries' more moderate growth trajectories, and short-term borrowing costs which already are above U.S. levels. The gradual
upward trend in U.S. short-term rates will continue to favour a further strengthening in the U.S. dollar vis-à-vis most currencies, with
capital inflows from developing and advanced economies increasingly attracted to safer and higher investment returns.
Any further divergence in economic and policy performances would risk another bout of destabilizing capital outflows, especially
from many structurally weak emerging market economies, and an even stronger U.S. dollar. Notwithstanding the anticipated
strengthening in global economic activity, a stronger greenback will continue to pressure many US$-denominated commodity
prices through much of the year until oversupply conditions are reduced. Commodity-related currencies such as the Canadian
and Australian dollars are likely to remain at risk given the persistent weakness in many resource prices.
2
January 8, 2015
Global Economics
Global Forecast Update
International
2000-13
2015f
2016f
(annual % change)
Real GDP
World (based on purchasing power parity)
2014f
3.9
3.2
3.3
3.6
Canada
United States
Mexico
2.2
1.9
2.4
2.4
2.4
2.1
2.2
3.3
3.3
2.1
3.1
3.7
United Kingdom
Euro zone
Germany
France
Italy
Spain
Greece
Portugal
Ireland
Russia
T urkey
1.8
1.2
1.2
1.3
0.2
1.6
0.2
0.3
2.7
4.9
4.4
2.6
0.8
1.4
0.4
-0.3
1.2
0.5
0.8
5.5
0.5
3.0
2.8
1.0
1.1
0.8
0.4
1.8
1.9
1.5
2.8
-5.0
3.5
2.3
1.3
1.7
1.3
0.9
2.0
2.5
1.8
3.0
0.5
4.0
China
India
Japan
South Korea
Indonesia
Australia
T hailand
9.1
7.0
0.9
4.1
5.5
3.0
4.1
7.4
5.4
0.4
3.5
5.2
2.7
1.0
7.0
5.8
1.1
3.6
5.5
2.8
4.0
6.5
6.2
1.0
3.8
5.8
2.8
4.0
Brazil
Colombia
Peru
Chile
3.4
4.2
5.6
4.4
0.2
4.8
2.6
1.7
0.5
4.1
5.0
2.7
1.5
4.4
5.7
3.9
2.0
2.4
4.7
2.2
1.3
4.2
1.6
1.9
4.2
2.1
2.3
4.0
United Kingdom
Euro zone
Germany
France
Italy
Spain
Greece
Portugal
Ireland
Russia
T urkey
2.3
2.0
1.7
1.8
2.3
2.7
2.7
2.4
2.1
11.4
16.6
0.5
-0.2
0.1
-0.1
-0.1
-1.1
-1.4
-0.2
0.0
11.4
8.2
1.4
0.3
0.7
0.4
0.3
0.2
-0.2
0.3
0.7
10.5
6.5
2.3
1.1
1.2
1.0
0.7
0.8
0.6
0.8
1.1
9.0
6.0
China
India*
Japan
South Korea
Indonesia
Australia
T hailand
2.4
10.2
-0.1
2.9
5.6
3.0
2.6
1.3
5.0
2.3
0.8
6.2
2.0
0.6
2.2
6.0
1.5
2.0
5.2
2.5
2.1
2.7
6.5
1.6
2.6
5.4
2.7
2.5
6.5
5.1
2.6
3.2
6.5
3.5
3.2
4.6
7.0
3.4
3.0
2.6
6.0
3.0
2.8
3.0
Brazil
Colombia
Peru
Chile
*WPI used prior to 2012.
International

We have revised our Chinese real
GDP growth forecast downward
to 7.0% and 6.5% in 2015 and
2016, respectively, reflecting a
slowdown in the manufacturing
and trade sectors that is only
somewhat offset by a moderate
pick-up in domestic services
consumption. Reduced global oil
prices will decrease most Asian
economies’ net import bills, which
will improve their current account
balances. Inflation forecasts have
also been revised downwards to
reflect lower international oil
prices. Thailand is one of the
largest beneficiaries of lower oil
prices in Asia due to the outsized
value of petroleum imports
relative to GDP. Accordingly, the
boost to consumers and
businesses will support the
economy, with the country’s 2015
real GDP growth forecast revised
up to 4.0% from 3.8%.

The Brazilian economy, which
has been flirting with recession
over the past few months, will
barely expand in the year
ahead; we expect real GDP will
grow by 0.5% in 2015 before
gradually accelerating to 1.5% in
2016. In Colombia, we estimate
that energy-related exports and
investments will be negatively
affected by the oil price collapse,
and that the Federal government
will foster economic activity
through a more aggressive
infrastructure development
programme and a weaker
domestic currency. Chile’s
economy remains weak with
four consecutive quarters of
decelerating growth. We
estimate the economy expanded
1.7% in 2014, and will
accelerate to 2.7% in 2015,
subject to downward risks.

Russia has experienced severe
market turmoil over the past
month fuelled by plummeting oil
prices, intensifying capital flight,
and economic stress from
Western sanctions. Recessionary
forces are gathering steam,
inflation is worryingly high, and
banking sector stability is
concerning. We now expect that
the Russian economy will contract
by 5% in 2015 as tight liquidity
and elevated interest rates
dampen domestic demand, and
(y/y % change, year-end)
Consum er Price s
Canada
United States
Mexico
Forecast Changes
… continued on the next page
3
January 8, 2015
Global Economics
Global Forecast Update
International
2000-13
2014f
2015f
2016f
(% of GDP)
Curre nt Account Balance
Canada
United States
Mexico
-0.1
-4.0
-1.4
-2.1
-2.3
-2.0
-3.0
-2.3
-2.4
-2.5
-2.3
-2.4
United Kingdom
Euro zone
Germany
France
Italy
Spain
Greece
Portugal
Ireland
Russia
T urkey
-2.5
0.1
4.1
-0.4
-1.2
-1.5
-7.5
-8.3
-1.3
7.6
-4.5
-4.0
2.4
7.0
-1.4
1.5
0.3
1.0
0.4
5.0
3.0
-5.5
-3.5
2.5
6.5
-1.2
1.5
0.6
1.2
0.6
5.5
2.5
-5.0
-3.0
2.2
6.0
-1.0
1.5
0.5
1.4
0.9
5.0
2.0
-5.5
China
India
Japan
South Korea
Indonesia
Australia
T hailand
4.3
-1.5
2.9
2.1
1.4
-4.5
2.7
2.4
-1.8
0.7
6.4
-2.9
-2.8
3.5
2.2
-2.3
1.1
6.9
-2.3
-2.8
2.9
2.1
-2.4
1.3
6.2
-1.9
-2.5
2.5
Brazil
Colombia
Peru
Chile
-1.3
-1.9
-1.4
0.4
-3.9
-4.2
-4.6
-1.6
-4.0
-4.9
-4.9
-1.8
-3.7
-4.4
-3.7
-1.9
Commodities
Forecast Changes
… continued from previous page
International
lower energy prices reduce its
main export revenue. In 2016, the
expected improvement in oil
prices and an expected easing of
sanctions should support a
modest economic rebound.
Inflation figures continue to pose
risks in Europe; we have lowered
our inflation forecasts across the
region and expect the European
Central Bank will launch a
sovereign bond-buying program
at its January 22nd meeting.
Commodities

WTI oil prices have dropped to
US$48/bbl in early 2015 (Brent
to US$51), against the backdrop
of weak global demand growth
and more-than-ample supply.
Prices are currently below
production costs across North
America and are unsustainable
at these levels. A supply-side
adjustment internationally will
set the stage for a moderate
recovery in prices by mid-2015.

Oil-targetted drilling activity in
Western Canada and in the U.S.
shales (the North Dakota
Bakken and the Permian &
Eagle Ford Basins) is dropping
sharply and will fall further in
coming months. While U.S. oil
production could increase in
2015, the gain will be less than
half the extraordinary 1.28 mb/d
advance from early 2014 to
early 2015. Saudi Arabia and
other major Gulf Co-operation
Council members decided not to
cut output to shore up prices at
the November 27, 2014
meeting, but instead to allow
prices to drop to levels that
would curb development of the
U.S. shales. Saudi Arabia has
been losing market share in the
U.S. Gulf and may fear an
eventual market share loss in
Asia.

While capital spending in
Western Canada’s ‘oil patch’ will
likely drop by 20% in 2015,
production and exports are likely
to increase, given new project
development and the recent
commissioning of the Flanagan
Pipeline and Seaway expansion
to Texas. Canadian oil will back
out more overseas crude into
the United States.
(annual average)
WT I Oil (US$/bbl)
Brent Oil (US$/bbl)
Nymex Natural Gas (US$/mmbtu)
63
65
5.32
93
99
4.26
60
63
3.75
70
73
3.75
Copper (US$/lb)
Zinc (US$/lb)
Nickel (US$/lb)
Gold, London PM Fix (US$/oz)
2.30
0.79
7.58
792
3.11
0.98
7.65
1,266
2.90
1.20
9.00
1,150
2.85
1.60
11.50
1,150
745
587
280
1,025
604
349
1,005
610
370
1,020
615
400
Pulp (US$/tonne)
Newsprint (US$/tonne)
Lumber (US$/mfbm)
World GDP Growth & WTI
120
y/y % change
$ per barrel, annual avg.
Commodity Price Trends
6
900
Index:2002Q1=100
800
WTI Oil
100
5
80
4
Nickel
700
WTI Oil
600
Copper
500
60
3
40
2
Natural
Gas
400
300
200
20
1
World GDP
Growth
0
0
00
02
04
06
08
10
12
14f 16f
Source: Scotiabank Economics, IMF.
100
Gold
0
02
04
06
08
10
12
14
Source: Bloomberg, Scotiabank Economics.
4
January 8, 2015
Global Economics
Global Forecast Update
North America
2000-13
2015f
2016f
(annual % change)
Canada
Real GDP
Consumer Spending
Residential Investment
Business Investment
Government
Exports
Imports
2014f
2.2
3.0
3.8
3.7
2.7
0.8
3.3
2.4
2.8
2.5
-0.4
-0.1
5.5
1.7
2.2
2.6
2.1
0.7
0.2
5.0
3.6
2.1
2.3
-0.4
2.7
0.3
5.0
3.7
4.7
2.4
2.0
1.8
5.1
1.5
238
7.1
4.3
1.9
2.0
1.8
10.5
0.8
139
6.9
2.1
0.0
1.3
1.9
3.0
1.1
199
6.7
3.8
1.7
2.0
1.9
6.5
0.9
156
6.8
Current Account Balance (C$ bn.)
Merchandise T rade Balance (C$ bn.)
Federal Budget Balance (C$ bn.)
per cent of GDP
-6.5
33.9
-4.5
-0.3
-42.2
5.5
-2.0
-0.1
-60.3
-14.7
1.0
0.0
-52.5
-6.3
2.5
0.1
Housing Starts (thousands)
Motor Vehicle Sales (thousands)
Motor Vehicle Production (thousands)
Industrial Production
200
1,606
2,421
0.5
190
1,851
2,350
3.7
185
1,855
2,390
4.1
180
1,855
2,450
3.5
Real GDP
Consumer Spending
Residential Investment
Business Investment
Government
Exports
Imports
1.9
2.3
-1.8
2.0
1.2
4.0
3.4
2.4
2.5
1.6
6.2
0.0
3.3
3.7
3.3
3.4
6.0
4.7
0.9
5.6
5.2
3.1
3.3
8.4
5.2
0.5
5.8
5.9
Nominal GDP
GDP Deflator
Consumer Price Index
Core CPI
Pre-Tax Corporate Profits
Employment
millions of jobs
Unemployment Rate (%)
4.0
2.1
2.4
2.0
6.9
0.4
0.51
6.4
4.0
1.5
1.7
1.8
0.3
1.8
2.50
6.2
4.5
1.2
1.3
2.0
9.5
2.0
2.73
5.5
4.9
1.7
2.2
2.2
7.0
1.6
2.26
5.2
Current Account Balance (US$ bn.)
Merchandise T rade Balance (US$ bn.)
Federal Budget Balance (US$ bn.)
per cent of GDP
-537
-655
-539
-4.0
-401
-737
-483
-2.8
-419
-764
-460
-2.5
-444
-814
-490
-2.6
Housing Starts (millions)
Motor Vehicle Sales (millions)
Motor Vehicle Production (millions)
Industrial Production
1.31
15.2
10.5
0.9
1.00
16.4
11.6
4.2
1.20
17.0
12.0
4.2
1.35
17.3
12.2
3.5
2.4
4.7
-13.3
-6.5
2.1
4.2
-26.6
-3.2
3.3
4.2
-31.8
-7.9
3.7
4.0
-34.9
-10.7
Nominal GDP
GDP Deflator
Consumer Price Index
Core CPI
Pre-Tax Corporate Profits
Employment
thousands of jobs
Unemployment Rate (%)
Forecast Changes
Canada & United States

We have again edged down our
forecast for Canadian GDP
growth for 2015, from 2.3% to
2.2%, in light of the continuing
slump in crude oil prices.
Notwithstanding lower prices at
the pump, sluggish employment
and wage gains, a more
subdued housing market and
high household debt burdens
are expected to restrain
consumer spending. The outlook
for industrial activity is mixed,
with sharply lower oil prices
tempering energy sector
investment, while strengthening
U.S. growth and a weaker
Canadian dollar boost
manufacturing prospects.

Our forecast for U.S. growth this
year and next is unchanged, at
3.3% and 3.1%, respectively.
Consumer confidence and
spending are benefitting from
the sharp drop in gasoline prices
to a five-year low and the steady
improvement in labour market
conditions. While low oil prices
and U.S. dollar strength are
expected to dampen investment
and export gains, U.S.
producers will continue to
benefit from solid domestic sales
and a well diversified export
base.

For Canada’s federal
government, our near-term
outlook for softer oil prices and
lower inflation steepens the
challenge of balanced books by
fiscal 2015-16.For U.S. federal
and state revenues, robust
output growth represents a
significant offset to the nearterm revenue constraint of
slower inflation.
United States
Mexico

We reaffirm our view that Banco
de Mexico will begin to increase
interest rates once the U.S.
Federal Reserve makes the first
move. Heightened volatility in
energy markets has prompted
adjustments in our currency
market view.
Mexico
Real GDP
Consumer Price Index (year-end)
Current Account Balance (US$ bn.)
Merchandise T rade Balance (US$ bn.)
5
January 8, 2015
Global Economics
Global Forecast Update
Provincial
Provincial
2000-13
2000-13 2014f
2014f 2015f
2015f 2016f
2016f
2000-13
2000-13
2014f
2014f
2015f
2015f 2016f
2016f
Budget Balances,
Balances, FYFY
March
31 31
Budget
March
($millions)
($ millions)
Real
GDPGDP
Real
(annual
% change)
(annual
% change)
Canada
Canada
2.2
2.4
2.2
2.1
-3,102
Newfoundland
& Labrador
Newfoundland & Labrador
Prince
Edward
Prince Edward
IslandIsland
Nova Scotia
Nova
Scotia
New Brunswick
New
Brunswick
3.1
1.9
1.5
1.3
0.3
1.3
1.5
0.9
0.2
1.6
1.9
1.2
0.1
1.6
2.0
1.3
167
-40
23
-97
Quebec
Quebec
Ontario
Ontario
1.8
1.9
1.8
2.3
1.9
2.6
1.8
2.3
-836
-4,477
Manitoba
Manitoba
Saskatchewan
Saskatchewan
Alberta
Alberta
British Columbia
British
Columbia
2.4
2.4
3.3
2.6
2.2
1.2
3.9
2.1
2.4
1.7
2.3
2.5
2.3
1.8
2.2
2.7
-5,150 * -2,000
-389 *
-52
-679 *
-499 *
-6 **
440
n.a. ***
198
n.a.
n.a.
n.a.
n.a.
-2,824 * -2,350
-10,453 * -12,507
n.a.
n.a.
*
*
*
*
Provinces

Over the two-year forecast
period, our revised outlook for
softer oil prices and a weaker
Canadian dollar vis-à-vis the
U.S. dollar is expected to
support real GDP growth in
Manitoba, Central Canada and
the Maritimes. Reflecting a
slower-than-anticipated start on
LNG investment, British
Columbia’s growth is trimmed
through 2016, leaving Ontario
leading provincial growth in
2015 by a narrow margin.

Increasing oil price uncertainty
continues to temper our nearterm growth outlook for Alberta,
Saskatchewan and
Newfoundland and Labrador,
though the three provinces
entering 2016 should begin to
benefit from the gradual
recovery anticipated in both
Brent and WTI oil prices.
Alberta’s housing starts over the
next two years are edged lower,
following last year’s buoyant
activity.

Moderating inflation is
anticipated across Canada given
lower oil and natural gas prices.
For the three major oil-producing
provinces, the surge in recent
years in labour compensation is
expected to cool, alongside
lower core inflation persisting
through 2016.

Canadian vehicle sales in 2014
climbed to a stronger-thanexpected 1.85 million units, with
gains in every region. We expect
purchases to climb to new
heights in 2015, with the
increases centred in the
industrial heartland.

The budget challenges for
Alberta, Saskatchewan and
Newfoundland and Labrador
during the second half of fiscal
2014-15 (FY15), given the
erosion of their royalty and
corporate income tax revenues
with the steep oil price
correction, underscores the
difficult decisions anticipated in
the budget planning for FY16.
Conversely, recent economic
developments should assist the
Provinces not involved in
petroleum production with their
budget targets.
1,000
-916
-45
-221
-377
-522
589
2,499
353
Forecast Changes
-402
71
2,706
444
n.a.
n.a.
n.a.
n.a.
* Final.* Final.
FY14
prov.
estimates:
FY14&&FY15
FY15 prov.
estimates:
Provinces.Provinces.
** FY04-FY13.
** FY04-FY13.
Operational
Balances: FY14 & FY15.
*** Operational***Balances:
FY14 & FY15.
Employment
Employment
(annual
% change)
(annual
% change)
Unemployment
Rate Rate
Unemployment
(annual
average,
(annual
average,
%) %)
Canada
Canada
1.5
0.8
1.1
0.9
7.1
6.9
6.7
6.8
Newfoundland
& Labrador
Newfoundland & Labrador
Prince Edward
IslandIsland
Prince
Edward
Nova Scotia
Nova
Scotia
New Brunswick
New
Brunswick
1.0
1.5
0.8
0.5
-2.0
0.2
-1.4
0.3
0.5
0.6
0.8
0.5
0.1
0.5
0.6
0.5
14.5
11.3
8.8
9.5
12.0
10.8
8.9
9.8
11.8
10.8
8.8
9.7
12.0
10.7
8.7
9.7
Quebec
Quebec
Ontario
Ontario
1.4
1.4
0.0
0.8
0.8
1.1
0.7
1.0
8.1
7.2
7.8
7.3
7.6
7.1
7.5
7.0
Manitoba
Manitoba
Saskatchewan
Saskatchewan
Alberta
Alberta
British Columbia
British
Columbia
1.1
1.2
2.6
1.4
0.0
1.9
2.9
0.9
0.7
0.8
2.0
1.1
0.7
0.8
1.5
1.2
5.0
4.9
4.8
6.7
5.4
3.7
4.6
6.1
5.2
3.8
4.5
6.1
5.1
4.0
4.6
6.1
Housing
StartsStarts
Housing
(annual,
thousands
(annual, thousands
of units)of units)
Motor
Vehicle
SalesSales
Motor
Vehicle
(annual,
thousands
of units)
(annual, thousands
of units)
Canada
Canada
200
190
185
180
1,606
1,851
1,855
1,855
Atlantic
Atlantic
12
8
9
9
117
136
136
135
Quebec
Quebec
Ontario
Ontario
45
72
39
59
38
59
37
59
407
607
418
719
420
726
421
728
Manitoba
Manitoba
Saskatchewan
Saskatchewan
Alberta
Alberta
British Columbia
British
Columbia
5
5
34
27
6
9
41
28
6
8
39
26
6
7
36
26
45
44
211
175
56
57
271
194
56
56
266
195
56
55
264
196
6
January 8, 2015
Global Economics
Global Forecast Update
Quarterly Forecasts
2014
2015
2016
Canada
Q3
Q4f
Q1f
Q2f
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
Real GDP (q/q, ann. % change)
Real GDP (y/y, % change)
Consumer Prices (y/y, % change)
Core CPI (y/y % change)
2.8
2.6
2.1
2.0
2.4
2.5
2.2
2.2
1.8
2.6
1.5
2.1
1.7
2.2
1.1
1.9
1.9
1.9
1.2
1.8
2.1
1.9
1.6
1.8
2.1
2.0
1.8
1.8
2.1
2.1
1.9
1.9
2.2
2.1
2.1
2.0
2.2
2.1
2.1
2.0
5.0
2.7
1.8
1.8
3.0
2.6
1.3
1.8
2.8
3.8
1.1
1.9
2.8
3.4
1.0
1.9
3.1
2.9
1.2
2.0
3.2
3.0
1.9
2.1
3.2
3.1
2.1
2.1
3.1
3.2
2.1
2.1
2.9
3.1
2.3
2.2
2.9
3.0
2.3
2.3
United States
Real GDP (q/q, ann. % change)
Real GDP (y/y, % change)
Consumer Prices (y/y, % change)
Core CPI (y/y % change)
Financial Markets
Central Bank Rates
(%, end of period)
Am ericas
Bank of Canada
U.S. Federal Reserve
Bank of Mexico
Central Bank of Brazil
Bank of the Republic of Colombia
Central Reserve Bank of Peru
Central Bank of Chile
1.00
0.25
3.00
1.00
0.25
3.00
1.00
0.25
3.00
1.00
0.50
3.25
1.00
0.75
3.75
1.00
1.25
4.00
1.00
1.50
4.50
1.25
1.75
4.75
1.50
2.25
5.25
1.75
2.50
5.75
11.00
4.50
3.50
3.25
11.75
4.50
3.50
3.00
12.25
4.50
3.50
3.00
12.50
4.50
3.50
3.00
12.75
4.75
3.50
3.00
12.75
5.00
3.50
3.00
12.75
5.25
3.50
3.25
12.50
5.50
3.50
3.50
12.25
5.50
3.50
3.75
12.00
5.50
3.50
4.00
0.05
0.50
0.00
0.05
0.50
-0.25
0.05
0.50
-0.25
0.05
0.50
-0.25
0.05
0.50
-0.25
0.05
0.75
-0.25
0.05
0.75
-0.25
0.05
1.00
-0.25
0.05
1.00
-0.25
0.05
1.25
-0.25
2.50
6.00
8.00
2.25
7.50
2.00
2.50
5.60
8.00
2.00
7.75
2.00
2.50
5.35
7.75
2.00
7.75
2.00
2.50
5.35
7.75
2.00
7.75
2.00
2.75
5.35
7.50
2.00
7.75
2.00
3.00
5.35
7.50
2.00
7.75
2.00
3.25
5.35
7.50
2.25
8.00
2.25
3.50
5.35
7.50
2.50
8.00
2.50
3.75
5.35
7.50
2.75
8.00
2.75
3.75
5.35
7.50
3.00
8.00
3.00
0.92
1.12
1.63
2.15
2.67
0.92
1.01
1.34
1.79
2.34
1.00
1.00
1.35
1.70
2.30
1.00
1.10
1.60
1.90
2.55
1.00
1.20
1.80
2.10
2.65
1.00
1.30
2.00
2.30
2.75
1.05
1.45
2.10
2.45
2.90
1.30
1.65
2.30
2.55
3.00
1.55
2.00
2.50
2.70
3.15
1.85
2.25
2.60
2.85
3.30
0.02
0.57
1.76
2.49
3.20
0.04
0.66
1.65
2.17
2.75
0.25
0.80
1.60
2.10
2.65
0.60
1.10
1.80
2.30
2.90
1.10
1.50
2.10
2.50
3.00
1.60
1.90
2.40
2.75
3.20
1.85
2.15
2.60
2.85
3.30
2.10
2.30
2.75
2.95
3.45
2.40
2.55
3.00
3.10
3.50
2.60
2.75
3.10
3.25
3.75
0.90
0.56
-0.13
-0.34
-0.53
0.88
0.35
-0.31
-0.38
-0.41
0.75
0.20
-0.25
-0.40
-0.35
0.40
0.00
-0.20
-0.40
-0.35
-0.10
-0.30
-0.30
-0.40
-0.35
-0.60
-0.60
-0.40
-0.45
-0.45
-0.80
-0.70
-0.50
-0.40
-0.40
-0.80
-0.65
-0.45
-0.40
-0.45
-0.85
-0.55
-0.50
-0.40
-0.35
-0.75
-0.50
-0.50
-0.40
-0.45
Europe
European Central Bank
Bank of England
Swiss National Bank
Asia/Oceania
Reserve Bank of Australia
People's Bank of China
Reserve Bank of India
Bank of Korea
Bank Indonesia
Bank of Thailand
Canada
3-month T-bill
2-year Canada
5-year Canada
10-year Canada
30-year Canada
United States
3-month T-bill
2-year Treasury
5-year Treasury
10-year Treasury
30-year Treasury
Canada-U.S. Spreads
3-month T-bill
2-year
5-year
10-year
30-year
7
January 8, 2015
Global Economics
Global Forecast Update
Financial Markets
2014
Exchange Rates
2015
Q3
Q4
Q1f
Q2f
2016
Q3f
Q4f
Q1f
Q2f
Q3f
Q4f
(end of period)
Am ericas
Canadian Dollar (USDCAD)
Canadian Dollar (CADUSD)
Mexican Peso (USDMXN)
1.12
0.89
13.43
1.16
0.86
14.75
1.20
0.83
15.00
1.22
0.82
14.50
1.21
0.83
13.88
1.20
0.83
14.09
1.20
0.83
14.23
1.19
0.84
14.09
1.19
0.84
14.17
1.18
0.85
14.40
Brazilian Real (USDBRL)
Colombian Peso (USDCOP)
Peruvian Nuevo Sol (USDPEN)
Chilean Peso (USDCLP)
2.45
2025
2.89
598
2.66
2377
2.98
606
2.75
2500
3.05
625
2.80
2475
3.10
620
2.82
2500
3.15
615
2.85
2525
3.10
620
2.85
2550
3.07
620
2.90
2525
3.05
618
2.95
2500
3.03
615
3.00
2450
3.00
615
1.41
1.82
98
0.98
11.99
1.41
1.81
103
0.95
12.69
1.40
1.80
102
0.95
12.50
1.40
1.83
102
0.96
11.89
1.38
1.83
103
0.94
11.47
1.36
1.81
105
0.94
11.74
1.36
1.81
107
0.92
11.86
1.34
1.80
108
0.93
11.84
1.33
1.80
109
0.93
11.91
1.32
1.78
111
0.92
12.21
1.26
1.62
0.96
7.21
6.43
39.6
2.28
1.21
1.56
0.99
7.81
7.45
60.7
2.34
1.17
1.50
1.03
8.07
7.65
62.0
2.33
1.15
1.50
1.05
8.10
7.65
63.5
2.35
1.14
1.51
1.06
8.10
7.70
64.5
2.37
1.13
1.51
1.08
8.15
7.70
65.0
2.40
1.13
1.51
1.09
8.15
7.70
65.0
2.42
1.13
1.51
1.09
8.20
7.75
62.0
2.43
1.12
1.51
1.10
8.20
7.75
60.0
2.44
1.12
1.51
1.10
8.20
7.75
58.0
2.45
110
0.87
6.14
61.8
1055
12188
32.4
120
0.82
6.21
63.0
1091
12388
32.9
122
0.79
6.15
63.5
1133
12591
33.2
124
0.79
6.09
64.0
1145
12794
33.5
125
0.78
6.04
64.5
1158
12997
33.7
126
0.78
5.98
65.0
1170
13200
34.0
128
0.77
5.96
64.8
1165
13150
33.9
129
0.78
5.94
64.5
1160
13100
33.8
130
0.78
5.92
64.3
1155
13050
33.6
131
0.78
5.90
64.0
1150
13000
33.5
Canadian Dollar Cross Rates
Euro (EURCAD)
U.K. Pound (GBPCAD)
Japanese Yen (CADJPY)
Australian Dollar (AUDCAD)
Mexican Peso (CADMXN)
Europe
Euro (EURUSD)
U.K. Pound (GBPUSD)
Swiss Franc (USDCHF)
Swedish Krona (USDSEK)
Norwegian Krone (USDNOK)
Russian Ruble (USDRUB)
Turkish Lira (USDTRY)
Asia/Oceania
Japanese Yen (USDJPY)
Australian Dollar (AUDUSD)
Chinese Yuan (USDCNY)
Indian Rupee (USDINR)
South Korean Won (USDKRW)
Indonesian Rupiah (USDIDR)
Thai Baht (USDTHB)
Central Bank Rates
Global Inflation
7
10
%
6
10-Year Yields
7
y/y % change
%
6
8
U.S.
U.K.
5
6
4
Forecast
3
2
4
2
3
Canada
-2
1
0
04
06
08
10
12
14
16
Source: Bloomberg, Scotiabank Economics.
Forecast
U.S.
5
4
0
Euro zone
Forecast
China
Canada
Canada
U.S.
2
Euro
zone
1
0
-4
07 08 09 10 11 12 13 14 15 16
Source: Bloomberg, Scotiabank Economics.
04
06
08
10
12
14
16
Source: Bloomberg, Scotiabank Economics.
8