00:00:06:18 - 00:00:50:07

Hello and welcome to the monthly Economic Webcast for December 2025. My name is Eric Lascelles. I'm the chief economist for RBC Global Asset Management and as always, pleased to share with you our latest economic thinking.

You can see the title for this month's presentation is Improving Growth Outlook. Indeed, as we look from 2025 increasingly into 2026 it does seem to us that we can talk about a year that will probably manage to deliver somewhat superior growth.

We are looking for something of an acceleration in the economy, not so much in the early going of 2026. We think there's room for some acceleration thereafter, and indeed some headwinds that perhaps are set to fade a little bit, including the initial damage from tariffs and some tailwinds that are expected to grow. Let's jump in, as we always do.

00:00:50:07 - 00:01:48:21

Report card: We'll start with a report card of sorts. And we can indeed start on the positive side of that report card and celebrate that the U.S. government shutdown has been resolved. It was a long one. It was intense. It may yet return. So I don't want to oversell this, but nevertheless, we will take a resumption of more normal economic activity in the U.S. and more on almost all the subjects in detail a little bit later in the presentation.

There has been a slight reduction in U.S. tariffs recently. Certain products saw tariffs decline, certain countries have seen better deals struck. And so the tariff direction had mostly been toward the negative over the last 9 or 10 months. we've Ween a small step in a more positive direction. Again, more on that later.

There has been talk – and we'll see whether this happens – I’ve seen betting markets suggest perhaps in the realm of a 1 in 3 chance – but there’s been talk of stimulus checks perhaps being mailed out to U.S. households. And so, if that were to happen, that would indeed be a further short-term support to economic growth, though equally, of course, a challenge from a fiscal standpoint. We'll talk about that as well in a moment.

00:01:48:21 - 00:02:22:26

On the monetary policy front – and this is one of those tailwinds that has been growing –we've seen a few fed rate cuts over the last few months. In the U.S. we are, we think, reasonably likely to see one in the very near future, in the month of December. And so indeed, we are seeing additional support come from the monetary channel, which is a helpful thing.

And as I mentioned in the title, we are therefore in the business of upgrading, if anything, our 2026 growth outlook – not to extraordinary rates of growth, but that we could see pretty decent looking growth in particular over the second half of the year.

00:02:22:26 - 00:03:24:13

So what's not perfect about the world? Well, markets are jittery. That's a pretty important one. And so when we look at stock markets in particular, you do see a lot of wobbling and it’s no longer going upwards on a daily basis as we've seen in the past. So some choppiness there and there is some anxiety. And I'll speak to that very soon.

There are worries about an artificial intelligence bubble. So that's been, in fact, a big part of jittery markets. And so we can talk about that as well.

The U.S. economy has decelerated a little bit in the fourth quarter. Now, I would emphasize it moved improbably quickly, as we look back earlier in the year. And so some deceleration was perhaps inevitable. And of course, there was some damage from the shutdown and so on.

Nevertheless, we see a mild deceleration. It was in line with our expectations. Nothing too shocking going on, but it is nevertheless happening.

And then really stepping back, and this is the 30,000-ft view, just recognizing that we are now in a power-based order and a multipolar world and all those sorts of things that we've talked about with some regularity in the past.

00:03:24:13 - 00:04:29:28

As part of that, it is a dangerous world. Big countries are bullying smaller countries with greater regularity these days. So it's not a surprise that we are seeing military spending rise. And we think that trend continues for quite some time. I'll show you a chart on that in just a few moments.

Lastly, on the interesting side of things, we have a new Japanese prime minister who seems to be rather stimulus-minded and the first female prime minister of Japan. So that is something that can perhaps improve short-term growth. But there is some anxiety already about fiscal finances and inflation and that sort of thing.

We have the UK and France, both of which have been among the more fiscally challenged countries, and both have made serious efforts, or at least attempts, perhaps the better word, to engage in fiscal austerity. They've really struggled and the public hasn't much liked that.

We just got a UK budget that did involve some mild austerity. France has had to water down theirs. It's proving very difficult in practice to implement that austerity. So it points to the fact that countries with some fiscal excesses may have a fairly difficult path to get out of that situation of fiscal excess.

00:04:29:28 - 00:05:29:09

I do want to flag, and this is maybe now feeling a bit stale, and I indeed it barely enters my memory at this point. But it wasn't long ago that we had a fairly serious internet outage for a moment. And it really highlighted that some of the cloud providers are very concentrated providers. And indeed, there is a profound cyber vulnerability that exists.

As it happens, it was just an IT error. It wasn't a cyber attack, But it did flag the reality that if you were to see one of these major cloud providers taken out, suddenly you're losing access to all sorts of things, from banking to telecom. And the list really just went on and on and on.

And so, just understanding there is a downside risk to the world that didn't exist as of 10 or 15 years ago.

The Canadian budget came out not that long ago. Less revolutionary than expected, you might say. So let me be clear that there is a big deficit and so, again, that’s bad from a fiscal standpoint, good from a short-term growth standpoint.

There is a plan to boost capital expenditures and get that side going.

00:05:29:09 - 00:06:39:28

That's broadly welcome, I would say. Less money though, actually spent on CapEx than one might have imagined. It’s more about just encouraging other parties to do that. So some accelerated depreciation was a key feature. Similarly, just removing some of the red tape around major infrastructure and CapEx projects, and less of the government actually spending money on it.

Tax cuts, there have been rather significant tax cuts over the last 6-9 months in Canada. I’m thinking of the removal of the carbon tax and a small cut to the bottom tax bracket for personal income over the summer and removing the digital services tax and now some accelerated depreciation. So there have been tax cuts.

Not that much really was in the budget, though, most of it had been issued beforehand. And so on the net we do think that from a Canadian standpoint, the fiscal position is going to be supportive for growth. Maybe a little bit less extreme, though, than one might have imagined going into that budget.

And then I'll comment just finally here. As you can see, gold prices are high and they moved up quite a bit. And I'll give you our thoughts on that a bit later. In a nutshell, we think that there is perhaps scope for gold prices to rise somewhat further over perhaps the next year or two.

Okay. Let's jump into the details here. And so we'll start just with financial markets.

00:06:39:28 - 00:07:39:15

On alert for fault lines in markets: I'll just warn as always, I'm an economist. I'm not the one managing these funds, and so perhaps take this with a grain of salt. Nevertheless, we can at a minimum observe as per this chart on the left, the stock market has been jumpy recently. It's no longer only going up. In fact, there was a fairly substantial drop across a certain swath of November, though we've since seen a partial recovery.

And so let's acknowledge jittery stock markets. Concerns over a number of things, valuations in general on the stock market, artificial intelligence or big tech or Mag Seven type valuations perhaps in particular, just concerns at how quickly the stock market had risen as well. So all of that has created a bit of caution here.

There had been a lot of ebullience, and some of that has now been taken out, which is arguably a helpful thing to have taken out. But let's just keep in mind the economy is still growing and we think it's capable of further, indeed even better growth in 2026.

Let's recognize that there is government stimulus coming, whether it's monetary or fiscal, not just for the U.S., but in a number of countries.

00:07:39:15 - 00:08:23:01

Our bottom line would be we think it's still more likely than not that stocks manage to go up over the next year, let’s say. On artificial intelligence concerns, these are not invalid. It is reasonable to wonder and indeed reasonable to have some level of concern just because there has been such a run up in the valuation of these companies.

Similarly, there has been such an extraordinary level of capital investment as well. You wonder about mal investment. Is this all money being well spent? To be honest, it is something of an open question.

We would say that this does look fairly different, as an example, than the tech bubble of the late 1990s, in the sense that these companies for the most part have significant earnings. And they're not deploying all of their free cash flow into CapEx, though I should say it is rising fairly quickly.

00:08:23:01 - 00:09:10:25

The valuations aren't as extreme. And even talk of bubbles, not that they're parallels, necessarily perfect. Indeed, highly imperfect. But, you know, it's notable that you heard Alan Greenspan, I believe, in 1996, talking about irrational exuberance. In other words, flagging the risk of a bubble. And the market actually went up another 3 or 4 years before, that bubble ended.

And so even if you think this is a bubble, it's not quite certain that it ends overnight. I would say that we are on alert and on watch for this, but not of the view that it is a slam dunk, excess situation.

We would say we do believe pretty firmly that AI is a really important technology and is making quite astonishing gains. And likely is to be a very important driver of productivity growth and profit growth across a large fraction of the economy and a large fraction of markets over the long run.

00:09:10:25 - 00:09:53:05

So that doesn't tell us too much about today versus tomorrow. But I would say we do place ourselves on the more optimistic side of the ledger over a longer time horizon.

And then lastly, there have been some credit concerns, a lot of them about private credit, which is pretty opaque, hard to tell quite what's happening in there – and so it’s hard to dispel or confirm those fears.

There’s some concern about subprime debt. It is clear that lower income Americans aren't feeling great in this environment. That is quite legitimate.

But I will say this: credit spreads, the ones we can observe at least, are still quite narrow. Private credit markets are still pretty small. So I mention that just to say that the risk of a systemic crisis or repercussions for the overall economy or the world are perhaps more limited than one might fear.

00:09:53:05 - 00:10:49:18

I can say that illiquidity, one of the hallmarks of private credit – it’s that you can't just say, “Give me my money back tomorrow,” which is certainly something to be aware of for people investing in it. But equally, it's a source of stability for the market because it means you don't have runs, because that money is fairly secure. And so we think that reduces the risk to that sector.

And to the extent we have seen a couple of fairly prominent credit defaults and some of them have private credit connections, we do think that there are significant idiosyncratic components. There was some fraud which we don't think is universal. These companies were oriented in some cases towards low-income immigrants. And, of course, there's been a crackdown on immigration in the U.S.

Another was oriented towards the auto part sector. The auto sector has been damaged by tariffs in a North American industry perspective. And so we would say, again, not to dispel all three of these concerns, it's right to be a little bit more nervous and to be watching these things quite closely.

00:10:49:18 - 00:11:26:11

But it's not obvious that any of these three things is a huge problem. I guess that’s the takeaway that I would give.

Okay, let's shift over to more conventional economic terrain. And so thinking about 2026 as we approach the new calendar year.

Growth tailwinds for 2026: It’s just very stylized, very high level, but we talk about monetary policy, which is interest rates, we talk about fiscal policy, which would be government spending, tax cuts and so on.

We talk about the stock market, which of course is now choppy, but it's still up an awful lot. And when the stock market is up a lot, there's a positive wealth effect comes in that people are richer, they spend a large part of that wealth, they spend a little bit of it, and that keeps the economy going.

00:11:26:11 - 00:11:50:09

And we talk about fairly low oil prices – and at best it’s a bit mixed for certain parts of Canada – but on the net we can say it’s a positive force, just for economic growth and for limiting inflation.

Looking at it from a U.S. standpoint, getting a little bit of monetary help, getting some fiscal help, getting a pretty strong stock market positive boost, benefiting very much from lower oil prices.

And so these are helping hands. It's why we think the economy can move more quickly next year along with – and not shown here – the idea that tariff damage won't disappear, but that it just will have been more fully absorbed and so won't be actively weighing on growth. It might be a smaller U.S. economy than it would have been, absent tariffs.

00:11:50:09 - 00:12:40:18

But maybe the adjustment from a growth perspective is more contained in 2025, in the first part of 2026.

And then for Canada, it’s a similar story. There's actually more monetary stimulus. Also, as just discussed with the budget, some fiscal stimulus. Also a stock market that’s run up, it's actually run up more than the U.S. market has, kind of amazingly. And gold has been a big part of that.

And then oil prices may be less of a helping hand just because, of course, there's an oil industry that doesn't particularly like it. But on the net, you would also say, growth tailwinds for 2026. We think there's room for faster growth. I'm going to show you a chart on that for Canada a little later.

00:12:40:18 - 00:13:58:23

Okay. Let's talk about that government shutdown.

U.S. government shutdown: So it is over. It ended after a record 43 days, so it was a very long shutdown. It was also an intense shutdown. It was all 12 of the funding buckets that the U.S. government needs to fund in its budget each year. All 12 of them, or no 12 of them had passed.

And so, indeed, we saw every non-essential aspect of government work shut down for a period of time. As an example, in 2019 during the last shutdown, only five of the 12 were shut down. So this was conservatively twice as consequential per unit of time, you might say, as well. We budget for about a percentage point or a bit more chopped off fourth quarter U.S. annual annualized growth.

We do think then that first quarter next year looks artificially good though, because of course you're getting that back. You're just getting back to where you were. And so you get an extra percentage point plus of growth for that quarter.

And indeed some catch up because government workers, even those who weren't working, get back pay. And so they're in a position to do some catchup spending. So that that helps somewhat as well.

I would say so this is all good that it's over the distortion area for the quarter, Q4. But the twist here is that we don't know with certainty that that's the end of the story, because they managed to extend funding on a few of those buckets out the full fiscal year through to the next fall.

00:13:58:23 - 00:14:35:08

However, they only extended most of the funding categories till January 31st. And so there is a real chance on February 1st of another shutdown. So that's not great. Polymarket, one of the betting websites, says about a one in three chance of that. So I think it's reasonable to assume we don't have to go through that again.

You could ask what politicians would have to gain by doing that same exercise all over again. We would like to think if you did have a shutdown, it might be short or just because really, what actually brought the initial shutdown to a head and resolved it was that essential workers, who had to work despite the shutdown, who were not being paid . . .

00:14:35:08 - 00:15:32:23

They were paid later, but they were not being paid in real time. They get a little bit grumpy with not getting paychecks. And you could imagine the liquidity challenges they would experience with their rent and mortgages and car payments and other things. And so usually what happens and what did happen, was that air traffic controllers and security guards and others simply stopped working as hard, or taking sick days, or working more slowly.

TSA is what I meant to say, not security guards.

And so particularly with air traffic, it really created enough headaches as the political pressure mounted to find a deal. And in the end, the Democrats caved. And so I mentioned all that to say that you could imagine those essential workers being maybe a little less tolerant of a second shutdown, within the span of a few months.

So they might start to slow their work down an awful lot almost immediately. And so in turn, bring government pressure to the fore. And so we would like to think another shutdown would be shorter. Hopefully we don't get one at all.

I'll just mention, this is more from a geeky economic perspective we were missing economic data.

00:15:32:23 - 00:16:07:23

They were not releasing in the U.S. the numbers that we're used to seeing. That is now starting to trickle out. We're going to get more over the next month.

Some things that go on forever, though. As an example, they said we will not be publishing an October U.S. inflation print. That just will never exist. We'll have to wait for the November number and sort of interpolate back to September.

Similarly for the job numbers, they've said they will put an October number out, sort of the prime missing month. However, there will never be an unemployment rate estimate, so we'll have to interpolate that between the September number, and whatever comes out in December. So, we're not running blind anymore. We're still waiting on some good data to have a better sense exactly for what’s happening in the U.S. economy.

00:16:07:23 - 00:16:48:11

U.S. average tariff rate now down to 15.9%: Okay, a quick nod to tariffs. I'm happy to say it's just a two-slide nod. A little less is happening in the tariff space than we've seen at certain points over the last year. But the big takeaway here is, as you can see on the right side, is just that we have seen the average U.S. tariff rate decline over the span of the last month or so.

And that's on the basis of a number of recent deals that have been struck. I'll speak to those next.

But just in terms of scale, of course it doesn't undo the bulk of the tariffs that had been implemented over the last year. It maybe partially unwinds the increase in tariffs we saw in August, when a lot of the country level deals were struck.

00:16:48:11 - 00:17:39:24

Okay. So here's a big, long, slide. Don't feel compelled to read it all or memorize it all. Apologies for the small font. I'll just run my way through these points.

Tariff developments: First of all, a U.S.-China truce. That happened a while ago now, but let's just reiterate it. The world's two biggest economies did reach a deal of sorts.

We'll see if everyone squares up and delivers on their commitments. But, for the moment at least, that tariff rate on China has fallen by 10%. I suppose you could say that’s a welcome development.

We've seen other more recent deals struck at the national or country level. Switzerland just struck a deal. They saw a big drop in their tariff rate from 39% to 15%.

Argentina struck a deal. They've been quite cozy with the U.S. recently.

Ecuador and a few other Central and South American countries have also struck fairly minor deals, at least from a from a global standpoint. We've seen tariffs lowered on certain I suppose critical inputs.

00:17:39:24 - 00:18:30:10

I shouldn’t say materials, that has its own special meaning, but foods essentially.

I think the U.S. is realizing that the average American is feeling pressed and they are not enjoying the high cost of living. Indeed, at the grocery store, they were particularly displeased.

And so we have seen tariffs lifted on quite a range of products – not everything, but on beef and tomatoes and coffee imports and tea imports. Tropical fruit, bananas were a big one, but apparently oranges are included as well – despite the fact that the U.S. makes some fruit juice – cocoa, spices.

So quite a range of food products have had the tariffs lifted. It is a cost-of-living focus. That's sort of the idea. Initially it looked as it might be tariffs were being lifted on products that the U.S. didn't make. So that would have been a ‘banana and coffee’ kind of analysis.

But they broadened it out in the end in a way that of course, you know, the U.S. does have a beef industry and does have an orange industry and so on.

00:18:30:10 - 00:19:08:28

And so it’s not quite as simple to say that they realized there was no point in tariffing things that they couldn't realistically make themselves.

But I would say that we are now seemingly in a phase of tariffs in which you are getting kind of more attention to the displeasure being expressed by Americans. And I would think that there is perhaps scope for some other products to see tariffs removed as they prove to be particularly painful for the average American. So do keep an eye on that.

The Supreme Court is likely to render a verdict toward the end of this year on whether the IEEPA tariffs are allowed or not. Those are the tariffs that have been used to apply countrywide tariffs to a large fraction of the world. It's a big chunk of the tariffs that are out there.

00:19:08:28 - 00:20:09:05

Betting markets think there's a three in four, a 75% or so chance that those tariffs go away if the Supreme Court rejects them. That would be you, you would imagine, quite consequential to see a lot of tariffs suddenly vanish.

I would say it's a little bit less consequential than you might think because as the U.S. strikes deals with countries, just like Switzerland recently, I believe that turns some former IEEPA tariffs into something else, so those might be able to endure.

More importantly, though, it seems to us there are enough other tariff tools in the toolkit that we still think the U.S. can broadly get where it wants to go. There could be a period of a bit of chaos for a month or two, but there is even a temporary tariff they can throw on overnight that gets them again most of the way to where they want to go.

So bottom line here, Supreme Court probably does overrule IEEPA tariffs and probably does change some things. But probably we’ll still have familiar-looking tariffs a year from now, that would be our guess.

I mentioned earlier the possibility of a $2,000 check or tax cut after some variation of that to the average American. This has been mentioned by President Trump.

00:20:09:05 - 00:21:05:10

They've talked about using tariff revenue to spend this. The numbers roughly match up. It doesn't completely make sense, because the tariff revenue was already being used to justify the tax cuts that took place last summer. And so you're sort of double counting if you're also spending that money now on a different kind of reward. But we've heard other people in the White House suggest it is indeed legitimately possible.

It would add a very real amount of growth in the short run, as much as of course, it would worsen the U.S. deficit as well. And so, it's an upside risk. That's how we're thinking of it. It's not our base case forecast.

But if you got that and it might be watered down – there's talk, maybe you'd see $1,000 and maybe it would be for a household, not for an individual. But still this is something that would actually artificially drive the economy forward in 2026 if implemented.

On the other hand, U.S.-Canada negotiations, of course, hit a speed bump in October. There's been a pause in talks. They had been seemingly close to a deal on steel and aluminum and some sort of quota system.

00:21:05:10 - 00:21:46:19

That's now down the road somewhere. I suspect they will still manage to pull that off, but that's just not here quite yet.

The big question mark is the USMCA trade deal. Our best guess, certainly with some risk, but our best guess is it does survive, it essentially formalizes some of the existing sector tariffs. The overall tariff rate on Canada probably doesn't change too much.

I do fear for auto assembly in terms of the likelihood that remains a very challenged industry for Canada, however. So Canada not in as good a position nevertheless not expecting the worst over the next year.

And of course, when we get clarity on the USMCA that's really important, in part because hopefully it's a reasonable deal, but in part because it removes a source of uncertainty that's actually been the big source of damage, you could argue, for the Canadian economy over the last few quarters.

00:21:46:19 - 00:23:06:24

And then lastly, and at a very, very high level: tariffs have come, tariffs have been significant. The actual tariff rate is a little lower than the theoretical rate. That is to say that when you simply tally up the tariffs that have been announced versus the trade sizes from a year ago, the amount of tariff money being collected is less than that.

And so that is in part because we're getting the data with a lag. So that's going to go up as of course, tariff rates have increased over the last 3 or 4 months.

It is in part because people are substituting, right? China has a big tariff. So you don't buy as many things from China, you buy it from another country and you never get the revenue you thought you were going to get. But equally, you can see the damage, therefore, maybe isn't quite as big.

And then there is the same kind of substitution at the sector level as well. Let's say one fruit product is tariffed. I guess now you go buy bananas which won't have tariffs or something like that.

And so we are seeing that maybe the tariff damage is a little bit lighter than initially feared. We are seeing the burden shared a little more across the supply chain. Foreign manufacturers are eating a bit of the cost. Domestic companies are eating some. The consumer isn't eating as much as you might have feared that they would face.

And of course there are other economic tailwinds that ultimately have kept, in particular, the U.S. economy just moving forward faster than you would have guessed – if you just said, hey, guess what, there's a 15%-16% tariff that is going to impact in 2025.

00:23:06:24 - 00:23:41:11

Okay, into some economic charts here. A lot of this is sort of unconventional, or at least not data released by the U.S. government, meaning we can actually have it despite the shutdown that ended only recently.

U.S. job market not doing too badly: Let's start by saying jobless claims, low is good here. Actually, you know, the trend did seem to be a little upward for a moment, but it's improved recently.

And so we can say the number of people claiming that they are newly unemployed is quite tame. It's not rising in a big way. So when we look at job numbers where there's not a lot of hiring, that's also true. But just keep in mind those two things can be true at the same time, because there's very little population growth, because there's very little immigration in the U.S.

00:23:41:11 - 00:24:37:26

And so as a result, bottom line here is, even with less hiring, the overall labor market isn't looking too bad. That's the first thought.

U.S. consumer slowing slightly: When we look at consumer spending – and so this is comparing official, consumer spending data in gold, which is now a bit stale and of course, missing bits from the shutdown, lack of data, versus real-time consumer spending, which is using sort of credit card data and some other neat tricks that have only been available in recent years, in blue.

You can see it does look as though the consumer has become a bit more cautious recently. Now, we may see this pick up shortly, though, because a non-trivial fraction of American workers were not being paid, right?

Government workers – whether they were essential or non-essential, whether they were working or sitting at home waiting to be pulled back to work – were not getting their paychecks. As you can imagine, consumer spending did dip.

The question will be now, over the next month or so, do we see that pick up in a significant way? Maybe for the moment, you would say it does look like the consumer is a little bit cooler than before.

And then the Beige Book.

00:24:37:26 - 00:25:16:00

Beige Book points to mediocre U.S. economy: So this is just a bit funny to say anecdotal, and then show you a chart with numbers – but it's an anecdotal survey that the U.S. Fed (Federal Reserve), conducts with businesses. We then insist on putting its numbers, which I'm sure defeats the purpose, but we do find it nevertheless a bit helpful. And so this would say the U.S. economy's doing okay.

Not doing great. Maybe doing a little worse than normal, truthfully, but not collapsing or anything like that. And so again, further to the idea that if anything, a bit of a deceleration, certainly an uninspired rate of growth to finish the year, but not a disaster.

The K-shaped economy theme, which we've talked about before, in evidence here as well.

00:25:16:00 - 00:26:26:00

High-income Americans feeling good: This is just a chart showing stock market holdings by income group. And so you see the, the top 10% of Americans have by far the most stock market holdings. That's almost axiomatic, I suppose. They have more wealth and of course, some of that wealth is in the stock market. But I mention that just because it’s such a gap versus the next 40%.

So that would be, I guess, the 50th percentile to the 90th percentile in gold. It certainly has real money, trillions of dollars. It's gone up. And then you look at the bottom half and they’ve gone up too, it should be noted. But they just don't have that much. And so I mentioned all that in part, obviously just as a statement on inequality.

But I think in this context, it’s also just a statement that as the stock market has gone up a lot, in in recent quarters, indeed recent years, that's something that has disproportionately benefited the wealthiest households. They have really been the biggest source of support for U.S. consumer spending. And they still look to our eyes to be in good shape.

So we think consumer spending can continue to go forward. But it really is quite striking, just the disconnect between different income levels.

Okay. Just a nod towards central banks.

Monetary easing – a boost for 2026 economic growth: And so of course here we are still in something of an easing cycle. It's been a little bit herky jerky in the sense that we got a fair amount of easing in 2024.

00:26:26:00 - 00:27:37:27

And then some central banks, including in the U.S. and Canada, took a break for a large fraction of 2025. And those central banks have now picked up the pace again. North American central banks cutting twice so far this year as I record these words at the end of November. The Fed is expected perhaps to do another rate cut in December.

I use the word perhaps just because it has been quite a roller coaster ride recently and, gosh, just in the last week or two, we had the market go from taking a Fed rate cut in December was very likely to thinking it was very unlikely. And now it's back to thinking it's very likely. So, that goes to show that really, no one knows nothing when it comes to this.

But at this juncture, it looks to us as though the Fed probably can cut in December, and we would still say there's room for some further easing across 2026. And so, getting some help there.

Canada probably takes a break. They made it pretty clear they think they've done enough work and let the record show the Canadian policy rate is now down into the low twos, 2.25%, which is somewhat stimulative.

And so perhaps it is enough. We would still say our bias is to think there could be a bit more rate cutting in 2026. And as I mentioned earlier, of course lower interest rates are then a support for economic growth over the subsequent years.

A couple thoughts on Canada here. Here's Canadian retail sales, both nominal and real.

00:27:37:27 - 00:28:15:14

Canadian consumer cooling: And so I actually saw surprisingly good growth across the start and middle of 2025. We were pleasantly surprised, particularly given that Canadian population growth is also falling so far.

It does look as though it is now starting to cool. So we are seeing some deceleration. It makes sense. You're just not seeing a lot of hiring, we think, though I'm going to talk about that in more detail in a moment. And there is still a level of uncertainty over trade and so on.

So the consumer has been good. The consumer may slow somewhat from here. We are still budgeting for a couple of fairly slow quarters of growth for Canada into early 2026.

Canadian hiring.

Dubious about recent strong job growth in Canada: So this is the official job numbers, so another choppy reference coming up here.

00:28:15:14 - 00:29:11:14

We've seen big gains and big drops. It's been quite curious, quite unusual. If you'd asked me as of September 1st – I guess shortly thereafter was when the August number actually came out – but in early September I would have said the Canadian job market was not looking good at all. You'd had five months out of six with either flattish or outright declines in employment, which no one wanted to see.

Curiously, September and October job numbers, those two blue bars on the right side have come in really strong. And so the question is, is this genuine? Are we seeing a revival of the Canadian economy after a challenging period? And you could maybe argue that the Canadian economy overreacted to tariffs back in the spring.

I mean, they were such a threat. And the reality has been, of course, it is really hurting some sectors, but the average tariff rate's about 7%. That's among the lower tariff rates that any country is facing.

And so it hasn't been as bad as feared. And 85 to 90% of what Canada sells to the U.S. isn't facing a tariff at all.

00:29:11:14 - 00:29:58:15

And so, maybe it makes sense that we're seeing some sort of bounce back. I'm a little bit dubious that we're seeing quite as much as it looks like. It's just, it's not consistent with other economic indicators that we're seeing, which would still suggest a fairly meager rate of economic growth. I would even note there's a secondary job survey Canada has.

It's the SEPH survey. It comes out later, which is why no one ever talks about it. It just came out for September. You can see we’re already at October for the other survey, the labor force survey that we're showing you on the screen. But the SEPH survey of September actually was very weak. It was a big drop.

And so I don't know if that's true or if this is true. I would just say I'm a little bit dubious, skeptical, that the Canadian job market is actually adding a lot of jobs right now. I think it's probably somewhat more muted than this. And I would assume we revert to a more soft trend over the next few months.

00:29:58:15 - 00:30:42:00

Canadian real GDP outlook looking brighter in 2026 : That said, as we look at Canadian growth, this is GDP growth annualized by quarter. Of course, we did have that rough quarter outright decline in the second quarter. We're tracking a mild increase – quite a, maybe a slim increase, the fair way to put it – for the third quarter, but an increase. We think it's probably pretty slow going in the fourth quarter.

We think it's not great for the first quarter of next year. We'll let the record show we are assuming fairly cautious going over the next few quarters. But we do think there is some room for acceleration after that.

So as we look into the second quarter and really the second half of 2026, we are talking about actually what could be pretty decent looking growth rates and again, supported by rate cuts in fiscal stimulus, and a stronger stock market, and a number of other forces of that nature.

00:30:42:00 - 00:32:14:03

Okay. A little round the world tour here. Let's talk Europe for one moment.

European outlook: And so European economies actually holding together. Not bad right now, which is what we'd expected. We are seeing some fiscal support come out of Germany, as a prominent example. We're not seeing that much austerity come out of France and the UK, despite their articulation of a need for that.

But I would say, there’s only so far that fiscal stimulus can get you. What Europe really needs is to improve its productivity growth. And so there was a report by Mario Draghi, who was a former head of the ECB, the European Central Bank, and he advocated for quite a range of initiatives to fix the productivity problem and get the European economy really moving sustainably more quickly again.

And so this is an assessment of the state of progress one year, into his recommended reforms. And really, this is a glass, half full glass half empty situation. I guess the title of this one is more on the glass half empty side, which is to say, only in the range of 10% of the things he said to do have been done.

Only another 20% or so were even being partially implemented. But I’d be tempted to say it's not all bad in the sense that you do actually have well over half of the suggested reforms in progress at a minimum.

Now ‘in progress,’ in many cases, we've learned, as you've looked into the details, is they've agreed to commission a study to study this, to perhaps implement it at a later date. So you have to be a little bit suspicious as to whether all of this actually gets done.

But I would say I am seeing some important progress. I think it is reasonable. I think European productivity growth can pick up somewhat. I'm hopeful they're able to implement even more of those things and get the economy moving even somewhat more quickly than that.

00:32:14:03 - 00:33:45:24

Chinese economy has slowed, but still pretty impressive gains: A quick word on China. I mean, the Chinese economy has its challenges, and the housing market is still soft. And capital expenditures aren't looking all that great. And of course, tariffs hurt and so on.

I would say, despite all that, the Chinese economy isn't all that badly off. So what we've chosen to focus on here is specifically Chinese productivity growth. In other words, how much the output goes up per hour of work. And that's sort of the holy grail. Productivity growth is the only means you can increase your financial standard of living, at least at a societal level.

And so Chinese productivity growth has slowed somewhat. It's not as fast as it was a decade ago. It's really only slowed very slightly.

So Chinese GDP growth has slowed quite a bit. Productivity growth has slowed less. And that is because the Chinese population is aging. Fertility rates are low, population is shrinking. And so when we talk about a Chinese economy that's growing at 4-5% a year, first of all, that's actually pretty good.

It's not 6, 8 or 10% as China used to grow at. But you know, 4 or 5 is not bad, would be my opening comment. But it's better than it looks because the Chinese workforce is just naturally shrinking. If you actually look at the increase in output per worker per hour work and productivity as you're seeing here, it's actually north of 5% per year.

So that would be the approximate increase in the standard of living for the average Chinese person. It's still quite good. You look at the U.S. maybe running 1.5% a year. So five is quite fast.

And so we would say China is still doing pretty well and we think actually transitioning nicely from an era of sort of copycat growth to an era of outright innovating.

00:33:45:24 - 00:35:13:12

Okay. there's two more slides here, so stick with me.

Gold shines: So there's just a chart of gold over the span of many, many decades. And so, of course, and I should say it's a logarithmic chart just to confuse you all, but more practically, to make it fit, I've got them on a screen to be able to see what's going on.

And so we've been to a number of gold bull markets in the past. In fact, we highlight four. We're in one, it would seem, right now. But looking at the prior three, the average of the increase in each of those was a 671% rally in the price of gold. And this one is “only” – and I say only in quotation marks – it has been about 250%.

And so if you were to see that prior pattern repeated, you could argue there is perhaps still further to run. I would warn gold is cyclical. Gold traditionally gives back about half of the gains. You can see on average a 52% drop off the high. So it doesn't just go up forever. It is a potentially rather choppy asset class.

But our bias is over the medium run we think maybe there is some more upside in part from a technical standpoint, as per just the observation about prior gold rallies.

The other thought would simply be that we do think the U.S. dollar is losing a little bit of clouds. And so gold is something of a substitute for the dollar. And as people lose a bit of confidence and trust in the U.S. and as U.S. fiscal excesses brew, and this sort of thing, it seems reasonable that other asset classes like precious metals and gold perhaps can outperform somewhat. Similarly, just looking at the fiscal excesses around the world, it's not unusual for those to be resolved via somewhat higher inflation.

00:35:13:12 - 00:35:54:02

And in fact, we are seeing inflation that is not cozily at 2.0%. It seems to be running at two and a half and 3% in a lot of countries, not just in the U.S. And so that's something that tends to favor physical assets like gold.

And similarly in a relatively low-rate environment – and we do have rates falling a little bit from here as per my earlier rate cut comments – that's something that often favors gold as well. And so it wouldn't surprise us if there was some further room for gold to move.

It's not a one-way journey, to be sure. Indeed, there's been some consolidation, which perhaps makes sense recently after quite a run. But that there might just be another leg to come in.

I mention that in part, and of course, if you're a Canadian investor, be aware that the TSX itself is well over 10% precious metals.

00:35:54:02 - 00:36:08:08

And so you may be more exposed to gold already than you’re thinking. It's a big part of why the Canadian stock market has been as strong as it has been.

Okay. I'll finish with this, just the dangerous world.

Dangerous world: rising defense spending: I guess I'm ending on a sour note of sorts, but this is defense spending as a share of GDP across NATO+ countries. You can see that, looking from the blue bar to the gold bar for each country, which is 2024 versus 2025, quite literally, every country is now committed to and I gather on its way to achieving that 2% of GDP target. That's long been sort of the NATO minimum threshold for military spending.

So countries are pushing for that. They're getting some pressure from the U.S. specifically. But I think countries also recognize it's just a more dangerous time. And perhaps it is a time to increase one's defense spending. You can see on the left side there are countries that are already well past the 2% threshold. Poland has tended to be the leader.

They're well ahead of the U.S., even, as a share of GDP, kind of amazingly. And of course, the White House is pressuring countries to get to 5% of GDP, which no one has achieved, not even the U.S.

I will say countries are making that commitment. You can see Canada in the red rectangle there. You can't see it on the chart, but the Canadian budget does talk about getting to 5%. It's a bit of an expansive definition in the sense that it includes infrastructure that’s sort of adjacent to the military and so on. It's not all bullets and soldiers’ salaries or anything quite like that.

Nevertheless, this is going to be a long-standing trend.

To the extent there is industry surrounding this, these are industries that can be expected to grow for quite an extended period of time. And so that dangerous world theme is an important investment theme, you might say. This is also just something perhaps to understand about where tax dollars will be going in the future.

00:37:35:01 - 00:37:53:17

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