Hello and welcome to the latest monthly Economic Webcast for the month of February 2026. My name is Eric Lascelles. I'm the chief economist and head of investment strategy research for RBC Global Asset Management, and very pleased, as always, to share with you our latest macro thinking. The title for this one is probably a little more straightforward than some of the titles we've used in prior months:

Positive on growth and earnings. So indeed, we are feeling pretty constructive about economic growth for 2026 and potentially for 2027 as well. Similarly, we see a fairly happy trend in corporate earnings, which would then signal potentially some further support in the stock market as well.

But of course, plenty going on. That hardly explains the full, breadth of issues that we are grappling with.

So let's work our way into the economy and geopolitics and markets and new Fed chairs and so on.

Report card: As we often do, we'll begin with a report card of sorts. In fact, we'll start on the positive side of the ledger with some positive things to talk about, both in terms of things that have been happening recently and things that we are flagging for the future.

As we'll continue to emphasize – and this very much explains our relatively positive economic outlook – there are some important growth tailwinds for 2026. We've laid those out at length in the prior few monthly webcasts. And so I won't do it all over again other than to say we have central banks that have been cutting rates.

That's helpful. We have governments that are spending money, providing fiscal stimulus that also has been, at least short term, economically supportive. We see a lot of AI CapEx in the U.S. That's helpful too.

We also think there is some room – and I guess I'm going to get to this a bit later again – there’s some room for AI-related productivity growth as well.

So reasonably constructive. Much of that explains then the earnings outlook and why earnings are moving. There is a bit more to that, and I'll get into that with a slide to support that claim a little bit later.

We now have a nominee, for the next U.S. Federal Reserve chair who will take that office in May. Kevin Warsh is that nominee.

I'll talk a bit about that later. I think, broadly speaking, it’s relatively benign, that's maybe the important message. And this is a broader, somewhat evergreen comment, at least in the context of, let's say, the last six months and hopefully the next six months: the combination of interest rate cuts, which loosely we are getting across a fair swath of the developed world, plus economies that are growing, is a relatively rare one. Often there's a recession brewing when you're dealing with rate cuts.

But this combination is constructive. I'm using that word a lot, but it is often fairly supportive to the stock market, in particular. I mentioned AI: we are somewhat optimistic that it will be a contributor to economic growth and in particular to productivity growth perhaps this year, likely in the years ahead. That statement perhaps undersells some of the complexity of the issue and concerns about the labour market and displacements.

Is it a bubble? Is it not a bubble? And so, again, maybe not the forum for all of that. And we've actually talked about some of that as well, in recent months. Nevertheless, on the net, we think it's more supportive of growth than adverse to it.

When we think about the business cycle – and I must confess, we're still working through some of our formal business cycle analysis –

But I would say the initial interpretation is that there may be some room left for growth, in this cycle. And I'll explain just why we think that a little bit later.

If you haven't figured this out yet, this report card is sort of our table of contents for where we're going to go in this webcast.

China's new economy is strong. Now, I must admit, China's overall economy has slowed a bit, so I'm perhaps pointing to the wrong thing here, but I think it is really important that, China is making significant headway in AI and in producing EV cars and on a number of other fronts as well – and just in terms of research and development. And so we're still fairly favorable on the country, even though the latest numbers haven't been incredibly positive.

And then just to flag as well, we’ll pull Canada briefly into the loop. There was a little China- Canada trade deal, or at least a reversal of some tariffs the two countries applied against each other in the last year.

And so I suppose at the margin, that’s somewhat welcome as well. So that's the good news.

There is a bit of bad news – a shorter list though, and I think that is maybe notable this time. In fact, many of these negatives do rhyme with each other as well.

We have seen some choppiness in financial markets. It's no longer a one-way direction for the stock market. It's certainly no longer a one-way direction for gold and silver, and perhaps mega-cap tech stocks. We've seen some wobbles there on occasion. I'll get into a few of those a bit later.

There has been U.S. dollar softness as a theme in particular over the last month, but you could debate if that's negative or positive. Any time a currency moves there are winners and losers, and it's not even as simple as saying the U.S wins or loses and some other country loses or wins. It's actually quite nuanced. And so a weaker U.S. dollar makes the U.S. economy more competitive in a long-term sense.

It might also result in a bit of extra inflation in terms of the cost of imported products going into the U.S. and American companies that are selling things to the rest of the world might actually see their earnings go up, which is nice.

Conversely, though, the reason the dollar's weakening – which is, I think, declining trust in the United States and so on – maybe that's not so great.

So there are some sort of positives and negatives hiding within there. But on the net, maybe reflecting some concern about the U.S. in a non-economic context, you might say. We'll get to gold and silver in a moment. Obviously, some big moves in several directions on that front.

We will also talk Greenland. Greenland kind of came and went in terms of being a market focus.

But it is, I think, of some relevance and there may be some lasting repercussions, even if there isn't an explicit change of sovereignty there. So we'll talk about that.

And then on the interesting side, boy, that's a big list too, I'm realizing. This might be a long one, folks. Rotating equity leadership is one thought.

And so, we've had mega-cap U.S. tech stocks as the dominant driver of the stock market for a long period of time. We'll see if this is enduringly shifted. It may not be, but it's at least worth mentioning. We've seen the stock market hold up recently without necessarily the help of those big tech companies. There's been a bit of a rotation in other directions, in some cases, towards cyclicals or defensive stocks and so on.

And so the stock market has still been capable of making some gains, but without that initial contributor (big tech companies). In general, it's something you could actually view as being positive, finding a new engine for growth for the stock market, perhaps enabling further gains. But of course, we can't neglect the fact that there are maybe some more question marks around those big tech stocks than there have been in the past.

You may recall there was a major government shutdown in the U.S. last fall that was eventually resolved. There was just a mini-government shutdown in very late January and very early February. It lasted just a handful of days. It has since been corrected.

So I think all broadly continues as it was meant to, with one unfortunately delayed job number that we're going to have to grapple with a bit later in February than we are used to.

Of course, it's fair to say that there is awfully busy U.S. foreign policy activity. We talked a lot last month about Venezuela specifically, Greenland is going to be a focus this go around. There is some alert for Iran as well. A U.S. aircraft carrier has been positioned there, and there are efforts to hold meetings.

But also some harsh words being exchanged between those two countries. The USMCA, that big trade deal, may be coming into focus. As I think about it, that isn't the right word because it's awfully blurry still in terms of what exactly happens. But the thinking is these negotiations do get closer and perhaps more serious as we get closer to the middle of 2026.

And here we are, a full month in and working towards that sort of date. So we need to think more about it. Our general thesis has been there will be moments when everyone – and maybe by everyone I'm thinking mostly Canada and Mexico, when many parties are quite nervous. And we will also hear some adverse proposals out of the U.S.

I think at the end of the day, there will likely be a deal. It will certainly be worse than the original USMCA but may not be that different than the current trading environment that right now prevails in terms of tariffs and so on. Which means it's not a horrible outcome.

And then just one other theme to mention, and I mention it here just because I don't get into it later.

But it's been an awfully busy White House. Now, that's been true for the last year, with tariffs and tax cuts and so on, but with a bit of a pivot, right? In just the last month or so, we’ve seen the proposal that the U.S. defense budget goes up by 50%. I don't think it will do quite that, but it does signal some prioritization of that part of the ledger.

We've seen a proposal to cap U.S. credit card rates at 10%, which sounds wonderful for consumers. Sounds quite bad for banks. Would be, I think, quite bad for banks. But it’s not clear it's all that great for consumers to the extent that some estimates would say about 40% of households would then just lose their qualification for a credit card, because it wouldn't make sense for banks to lend at that low rate to people of that particular credit rating.

A Medicare cap is essentially proposed. Or more precisely, the increase in payments to health insurers has been capped at plus point 1%; it was expected to be more like a 3 to 6% increase. That's a problem for the health care industry to some extent. So lots of moving parts here, if you're not kind of getting the clear picture.

Housing is in focus. The U.S. is engaging in mortgage-backed security buying, trying to pull that mortgage rate down to make housing more affordable, trying to block institutional investors from buying single family homes. So a big shift there as well.

With a criminal investigation into current Fed Chair Powell, there's a lot happening. A fair fraction of it isn't, at least on the surface, all that positive to markets. You worry about the politicization of the Fed with that criminal investigation. And banks are nervous about the credit cards, and health care companies are nervous about the health refund cap.

And so, not to say therefore all is negative, but just to say again, the White House is awfully busy. The scope for some sector-specific volatility is higher than normal. I think a lot of this is with a cost-of-living focus in the lead up to the midterm elections. So I would expect to continue to see some themes similar to this play out – and it can't escape attention that a number of these would be not so great for certain businesses, maybe in some cases good for households.

No judgment on that whatsoever, other than, of course, here I am talking to investors in an investment capacity. And so, it is a little bit tricky for investors at this juncture, given all of this.

I wouldn't want to lose sight of the fact that ultimately President Trump does key off of the strength of the stock market and the economy.

And so I'm not expecting things that are profoundly negative in that direction. But there are some important movements happening, at least policy balloons that have been floated in some cases – and some maybe watered-down version of several of these will ultimately be implemented.

Okay. That was one heck of a report card. Let's get into the picture show here and just share and elaborate on some of those ideas.

RBC GAM GDP forecasts for 2026 – mostly above consensus: To start with, these are, believe it or not, our current GDP (gross domestic product) forecasts for developed countries for 2026. And so just in terms of interpreting, the light blue bar is ultimately our forecasts. We've got a 2.5% growth forecast. This is Q4 over Q4 numbers for the U.S. for 2026. It's more like 1.4 for Canada, 1.8 for Europe and so on.

You can read those numbers better than I can say them. And if you're wondering what all the other little doodads are, well, there are two. Perhaps one would be the dark blue dash. That would be our prior quarter forecast. And so, loosely speaking, I guess with Canada as the exception, we've upgraded our growth forecasts, not downgraded them over the last quarter.

And so we're feeling a bit more optimistic.

Versus the consensus forecast, and those are these sort of orange-ish circles – and some of them are hiding beneath green circles, but they're there – we can say we are ultimately, with the exception of Canada again, a little bit above consensus.

So we are upgrading our forecasts, and I guess you could say we are slight optimists in terms of the rate of growth. Canada is an exception. We're a little bit below.

We think that there are still some challenges, not a disaster. Potentially there’s more growth in 2026 and 2025 for Canada. So still progression and important progress being made –

and I'm going to finish this webcast with a more granular chart on Canada speaking to that. But ultimately, we’re feeling reasonably good about 2026 from an economic growth perspective.

Positive corporate earnings outlook: And then just to pull in the other half of the title for this presentation, which was referring to fairly good earnings outlook, here's the U.S. interpretation at least; this is the S&P 500 index.

The consensus earnings estimates are not any kind of secret, it’s a superior earnings estimate. But still a couple of points to make here.

So each of these is the earnings estimate for a year and how it evolved over time. And so the first thought would be that, historically – looking at the gray and the light blue lines –historically the norm is that earnings expectations start too high, and then have to get ratcheted lower.

In other words, people are too optimistic. They have to scale back. That was not the case in 2025. The gold line shows those earnings expectations held up, and indeed that has not been the case for 2026 and 2027. We are, if anything, seeing steady upward revisions to earnings expectations.

And there's real momentum in this one. When it's rising in one month, on average, historically you've seen further increases more often than not the next month. So the fact that this is rising suggests we could continue to see rises. So there's an upside risk to this, we think.

The other important point is actually the gap between, I guess, the endpoint of each of these lines.

For instance, there was pretty good earnings growth in 2025, versus 2024, for the gold over the light blue lines. Very good earnings growth is expected this year in 2026. That's how much higher the red is than the gold. Very good earnings growth expected in 2027. That's the dark blue line over the red. The point being earnings growth has been pretty steadily double digits here.

We're seeing profit margins go up. We're seeing companies do well. Obviously, this is predicated on the policy environment not getting too unfriendly. It's predicated on our reasonably positive economic forecasts coming to fruition.

But in general, earnings are supportive. They're looking like a driver of growth for stock markets. And I say stock markets in part because, in fact, in large part it's not exclusively a U.S story.

So the U.S. has, of course, been the great leader in the stock market for quite a number of years. It still did just fine over the last year, but it was no longer a leader. It performed a little bit less impressively than some of the other markets. And indeed, many of those other markets now have earnings that are rising fairly handily as well.

Earnings are rising globally – a sign of economic health: So this is showing, not forecasts, but actual corporate earnings growth in different markets. And it's notable there are some pretty nice-looking upswings. Even emerging markets are starting to move higher, and indeed have been some of the best-performing stock markets as a result, as they break out of what had been a fairly stagnant trend.

The point being, if stock markets are looking fairly good, certainly this needs to be weighed against valuations – and particularly in the U.S., you might say in Canada, and perhaps Japan's stock valuations aren't cheap. But they're not bad elsewhere. And indeed, you can argue they may not be unfair in those three markets when you have earnings outlooks that are as reasonably favorable as this.

Okay. Let's dig into some themes now. One would be there was this great question mark as to who would be the next Fed chair.

Fed chair nominee selected – Warsh: And so presuming Congress doesn't get in the way, we have seen the White House nominate Kevin Warsh. This is a betting chart, you might say. It’s from Polymarket, showing who was the most likely candidate, that was perceived at least, at various points in recent months. It was a pretty frenetic race, and so in the last month alone, there were three different candidates who were deemed to be the favourite at different points in time. And maybe a bit more loosely, you could say for much of the fall, it was actually Kevin Hassett who was thought to be the favourite.

There was a bit of concern about that because he was deemed to be maybe more politicized than some of the other candidates, and kind of more dovish in a way that might be too dovish in a way that might let inflation perk up. And so he didn't ultimately win.

There was a brief moment in gold here where Rick Reeder, who is a BlackRock executive, was deemed to be the favourite.

Ultimately, Kevin Warsh won. And so let's say a few things about him. He is a prior Fed governor from loosely the mid-2000s to the early 2010s. And so he has some experience and was deemed appropriate to be nominated at a less political time, reasonably independent, therefore, which is an attractive feature.

And there were some relief in the markets from that. Do note that whatever he wants to do, it is a weak chair model. He only gets one vote out of 12. He doesn't get to decide monetary policy. He might have some sway. And he can tell staff to do certain forecasts and maybe lean on people a little bit.

But he doesn't get to decide. It's just one vote out of 12. In May is when he should start to get to influence things.

He does have a dovish bias, so he does advocate for rate cuts. I don't think you were going to see a candidate picked who didn't advocate for that. And so that would argue indeed for some rate cutting in the quarters ahead.

But historically he did not like quantitative easing. He did not like it back when he was originally a Fed governor. And the Fed was printing a lot of money and buying a lot of bonds. And so the interpretation there has been, okay, he likes the short-term bond rates that are low, but maybe long-term bond yields don't have to be quite as low because you don't have as much artificial support.

Now, it may be a moot point. The Fed isn't doing a huge amount of quantitative easing right now. But nevertheless, the view has been maybe a steeper yield curve under Kevin Warsh as well. And indeed, we did see some market reaction. I will elaborate on that in the next slide. But, loosely speaking, the dollar rose in response to his nomination.

And so I guess that was because there were other candidates who were maybe more political in nature, or would have been more concerned about the value of the dollar or the rate of inflation informing that, and the price of gold and silver fell again, being interpreted as it's a fairly steady set of hands, and we don't need to worry quite as much about inflation or politicization and so on.

Market reaction post-Warsh announcement: I would quibble a little bit with those interpretations just because actually, as this chart shows, the prior favorite had been someone who arguably would have been deemed even more independent. And so you would argue that to the extent Warsh is a little bit politicized and has seemingly changed his view – perhaps in part based on White House preference – that maybe that isn't the obvious response; but nevertheless in the end, it is a fairly benign outcome and so we probably shouldn't overthink this. And just in terms of what the markets have done, again, focusing on the dollar, focusing on gold and silver, don't confuse yourself here. These are different timeframes for each of the charts. So, on the dollar chart, essentially we've seen very real weakening of the dollar across the month of January.

And we've seen about half of that recovered since the Warsh announcement. So that is a vote that Warsh is someone who's not going to let inflation get out of hand, and is a reasonable, credible choice. Absent political considerations, the gold and silver price say the same thing.

Now, this is data going back more than a year.

So it's a bit of a different time frame. Of course, gold and silver have managed these truly extraordinary gains over that period of time. We saw quite a significant pullback in gold and silver. And so again, a vote that this isn't someone who's going to let inflation get out of hand or create big problems or let the dollar devalue too much.

And so we saw a retreat. I will say though, that ultimately we still think the U.S. dollar is probably going to decline over the next few years. We still think there's a structural bear market there for a variety of reasons. And, you know, we will see on gold and silver it's so choppy and got so almost exponential in terms of the gains earlier in January that it's hard to make overly intelligent comments. But it was notable that gold and silver did enjoy some support.

They hit the 50-day moving average, an important technical level.

An important technical level seemed to bounce somewhat off that maybe silver, trundling sideways off of that gold, bouncing off of that. And we would still say we think there is a strong case for gold in terms of central bank buying in a declining U.S. dollar and a dangerous world, and so on, such that it wouldn't surprise us if gold indeed has made a partial recovery that you can't see on this chart. But it wouldn't surprise us if there was some further room for gold to rise from here over a period of time, with the caveat that the three other times the price of gold has really gone through a major bull market,

Two were sort of in the 70s, and one was, I believe, the early 2000s. You ultimately saw about half of that given back later. So we don't know when later is. Maybe this time is just different altogether, we think there is some more upside, but it's not necessarily a forever story.

Okay. Let's move on from there. And so into geopolitics, just moving from one hot button topic to the next.

Greenland saga leaves lasting repercussions: I do believe that is a map of Greenland. So we're not missing the script altogether. I’ve got a lot of words here, let's just get into it. And so, the U.S has expressed an appetite for Greenland.

It's been articulated as primarily being the military significance of Greenland. Of course, the threat being Chinese and Russian intercontinental missiles that would come over the Arctic. So some strategic significance to that island. The quest for natural resources at a time when rare earths and critical minerals and so on, and just in general, resources are deemed to be more precious and more important and more critical that countries secure their own supplies.

And so the U.S. somewhat lustful from that standpoint as well.

And then kind of looser thoughts and these are maybe less clear, but a greater Arctic presence for the U.S., right. Controlling sea routes, undersea resources and so on. Expanding the U.S footprint seemingly. Going from the third biggest country to the second biggest country, perhaps allegedly emboldened by the Nobel Peace Prize snub.

I'd like to think not, but that has been used by the President as a reason as well.

And then, to get a little bit speculative here and perhaps get a bit silly, but, you know, it may be to surround Canada and put pressure on Canada. Of course, there has been some pressure applied to Canada already. But again, I think the focus rightly is on the first two items there, maybe even just on the first item, because there has been some disavowal of the resources ultimately being that important.

Again, we would argue the premise is somewhat flawed here. The U.S. already has quite ready access for its military in Greenland. There was a treaty in 1951. The treaty allows the U.S. even to expand from here. Conversely, in recent decades, the U.S. has actually shrunk its personnel footprint by I believe 98% and has shrunk the number of bases and installations it has from about 30 down to one.

So you could argue maybe it's not as important as the U.S. is claiming, but, regardless, the U.S. can grow that back if it wants to. U.S. companies are already allowed to open mines in Greenland, subject to a country's normal system of permits and evaluations. And indeed, you have Canadian and Swiss and Australian companies probably all operating mines already, and some other proposals, including a joint venture, including an American company.

So it's not clear that that is as constrained as feared. And so, as a result, it’s perhaps not a surprise that in the end we've seen some de-escalation recently. But it was a real conflict for a moment.

And so we had Greenland and of course Denmark saying not for sale. We had NATO indicating it would defend Greenland if it came to that, which is sort of a hard-to-fathom situation since the U.S. has been the core of NATO.

And so, would be quite problematic if it came to that. It’s unlikely to.

And then, of course, President Trump responding with the threat of a tariff against the European countries that have said they would defend Greenland. And so it did get messy for a moment. There has since been de-escalation. So maybe riling everyone up for no reason.

The U.S. has said there are no military plans. We think they still would like to buy Greenland. We think that's unlikely. It seems likely – and there's been announcement of a framework deal, though the details are very loose – there may be more of a deal between the NATO head and the U.S., as opposed to Greenland and Denmark, which would be the critical counterparties.

But in theory, a deal to enhance U.S. military access, perhaps enhance U.S. resource access without a transfer of sovereignty. So that seems most likely at this juncture.

It is worth, though, considering just lasting repercussions. And so we would frame that in lasting military repercussions, lasting economic/market repercussions. And so it is a re-emphasize that the U.S. has really pivoted.

This is not an isolationist foreign policy. This is an expansionist foreign policy, very activist as well. And so, you worry who's next. And of course, the focus is on Cuba a little bit right now – which has lost its access to Venezuelan oil and has always been an opponent of the U.S. – and on Colombia and on the Panama Canal Zone, and even questions about Canada occasionally raised.

And so it is certainly concerning. The U.S. is seemingly not a reliable military or trade partner. And so countries are having to revisit all of that. By definition, the NATO alliance has been somewhat weakened, perhaps Russia somewhat emboldened in that context.

And so it's a more dangerous world now. We've been saying that for a while, and it's not just from this, and it's not just from Venezuela.

It's been more dangerous, as a multipolar era unfolds and as the rule of law becomes less reliably enforced, internationally. But again, the takeaway is – and with an extra punctuation mark recently, just given recent events – this will really accelerate military spending. This, you would think, would encourage a further pivoting away from U.S. military procurement.

I don't think that's entirely practical for countries to do altogether, but nevertheless, I'm sure they aspire to that even more than before.

And then just from an economic, financial perspective, well, this is very speculative and we will see. I wouldn't be surprised it was more of the same as opposed to a real break.

But of course, countries have pursued what you might describe as an appeasement strategy of this White House over the last year: accepting higher tariffs, removing their own tariffs on the U.S, taking you could see the bad side of trade deals and so on . . . not being confrontational particularly. And you know, the fact that there were tariff threats levied against Europe in particular has a lot of Europeans saying, well, hold on, we had a deal.

We made concessions to achieve that deal. And yet, seemingly, that deal didn't mean a whole lot. And so why are we making concessions altogether? Maybe this is a time to push back. And there is power in numbers and so on. So we'll see if anything comes of that.

It's quite unclear right now. It is fair to say the U.S. has some vulnerability in an election year.

The U.S. would like to have a declining cost of living and rising standard of living. It gets a bit trickier if you end up back in trade wars and the like. So we'll see what comes of that. But ultimately we think not to too much.

And then just of course, in general, this is an ongoing theme:

International trust in the U.S. has declined a lot, but it's declined somewhat further. The U.S. was known as a trade adversary for more than a year now. Is it a military adversary? Hopefully not in the end.

But those questions are suddenly being asked and it does continue to some a contribute rather to some longer-standing themes that we've talked about before, which is just probably a weaker dollar over a multi-year period, probably a steeper yield curve over a period of time as well.

So just reiterating those points. Okay. On from there.

Trade policy uncertainty has receded, but some outstanding issues for 2026: Let's talk trade policy for a moment. And so, I guess we did see a little bit of a flare-up recently. You can see trade policy uncertainty rose again, nothing like a year ago, but rose again on threats of 10% tariffs that would escalate to 25% against Europe.

And similarly, other considerations. Here’s a rapid fire run through some of the trade questions and get them out of the way right now.

Will the Supreme Court strike down the IEEPA tariffs, which are the sector-based tariffs? It looks likely. Even the betting markets are saying a 68% or so chance right now. And so it looks more likely than not.

Hard to say when that judgment comes down. There was some thinking it would have happened already. Might happen late February, probably does happen, but there are other tariffs that the U.S. can apply in their stead. So we don't think it changes the dynamic too radically.

What happens to the USMCA? I talked about that already. But we're going to get to the serious negotiations.

There will be some scary threats. Ultimately, I think there is scope for a deal that doesn't look too different from the current trade arrangement. Maybe a little worse for auto assembly, maybe a little better for steel and aluminum if they get some quotas applied.

Will tariff pass-through increase? We will see on that front.  We saw a lot of domestic firms absorbing costs, a bit of foreign manufacturers absorbing.

We could get a little bit more, but broadly, the impact has just been less than feared.

Will we get $2,000 tariff rebate checks? Probably not $2,000 to every person. But I think there is a very real upside risk that the White House does some form of fiscal stimulus akin to this in the lead-up to the midterm elections.

And so there's some upside risk to growth that comes from that.

And then just recognizing there are other tariff threats being made. And again, USMCA is very central for Canada and Mexico. But we've seen more adverse side rules against South Korea recently and threats against Europe, and there are still sector investigations underway. So there are still some risks there.

But in general, you would say the tariff rate has settled somewhat. And actually, if anything has come down a little bit, over the last few months. In fact you can see that right here.

U.S. theoretical tariff rate around 16% but actual tariff collection has been lower (~10%): Here's me stealing my own thunder. So, you know, that blue line would be the theoretical tariff rate. So it's sort of a 16% kind of number, right now, down a little bit from where it was.

The gold line, though, is the actual tariff revenue collected expressed as a rate. And so you can see it's still quite a lot lower. Some of that is just, procurement specialists are getting really good at classifying products in a way that kind of minimizes the tariff hit, you might say – I'm sure, in a legal way, but nevertheless, in a clever way to minimize the tariff hit.

Similarly, we've seen people just not buy heavily tariffed goods and buy less tariffed goods.

And so you're just not collecting the money you thought you would because the trade profile itself has changed as well. It doesn't mean the tariffs don't hurt. It does mean the revenue collected isn't as big as expected. But in general, a bit less economic pain from that.

And so as we look at the economy in general here, it’s just a metric of economic data change.

U.S economy recovering from tariff shock: And so you can see we had a period of deterioration. We've seen a tentative period of strengthening now. And just to reiterate why tariffs haven't hurt more and they have hurt somewhat. An important point here is that the pain that was very real has been masked in part by artificial intelligence tailwinds, in particular for the U.S.

There was a lucky break there, we think. The other countries didn't retaliate with tariffs or at least didn't fully retaliate. So tariffs have been, you know, loosely half as big and bad as feared for every point the U.S. has put on.

As I mentioned, the actual tariff revenue has been lower than the theoretical rate. So that's been a bit less painful.

As I mentioned, a bit less tariff pass-through as well. And so we still think there's a bit of damage on its way. It hasn't fully been absorbed. But on the net, it hasn't been as bad a situation as feared. And that's a positive thing.

U.S. manufacturing staged surprisingly leap higher in January: Just a quick, chart here. It's probably never ideal when you pick one juicy chart to share.

And it may not be reflective of the whole picture, but just in general, manufacturing PMI has been, I would say, relatively soft in recent years. But the latest month, and that's why I'm sharing it, did see quite a big jump, and there's probably some artificiality to that. There's a bit of optimism from restocking after holiday shopping season. There is a bit of a boost as companies fearful of tariffs say, hey, they're not too bad right now.

Let's just get as many things in as we can, just in case things were to get worse. And so this may or may not stick, but the bottom line is it's about as much optimism as we've seen going back a number of years. And so I did want to share that.

Developed world macro signals are unimpressive but possibly ticking higher: And then just broadening that out and looking kind of across the developed world, or at least to some of the major markets, think too much to see here.

Honestly, we look at these primarily because we're worried there's going to be a sudden break lower and that could be trouble. And we're not at all seeing a break lower. But if anything, actually we're seeing a bit of a tick higher. So I would say that global growth even looking a little bit better right now.

And then just, you know, this is a bit of a vicious circle, or at least a circularity, which, of course, my job significantly is to use the economy to predict markets. And so is there any value in using markets to understand the economy, if the goal is to predict the markets –and you kind of get lost in your own mind when you think too hard about that.

U.S. credit spreads are quite narrow; near-term corporate pressures are benign: But I would still say, this is a positive sign: credit spreads. And it's not just American credit spreads, but this is a chart of American credit spreads. They're quite narrow. And that's often a situation you can spend a long time in. Often a very long stretch of the second half of the business cycle looks like that.

But equally, you're not seeing companies that are all that worried or markets that are all that worried about companies. And that's a positive sign because again, we are getting a bit of chop in the stock market and we are seeing some policy balloons swirl, as discussed earlier, and some geopolitical adventures and a new Fed chair.

So you could have imagined maybe the market would be getting nervous. The market is not getting nervous. It's still feeling pretty good about the outlook. And that's a good sign, we think.

U.S. fiscal deficit recently shrinking, despite tax cuts – driven by higher revenues from tariffs and better economy: A little aside here: this is the size of the U.S. fiscal deficit, as a share of GDP. And so we had an enormous deficit during the pandemic, enormous deficit during the global financial crisis – not as enormous today, but still pretty darn big for relatively benign economic conditions.

And of course, tax cuts were announced to some. I did want to report on all of that. Actually, as you can see with that little upward arrow on the far-right side, actually, the U.S. fiscal deficit has been shrinking a little bit recently. And so that is to say, the combination of tariffs which do raise money, and really just a relatively healthy economy and rising stock market and the capital gains associated with that that are paid in taxes and so on, has been outweighing the quite substantial tax cuts that were delivered last year.

And so you'd still like to see an awful lot more progress and it really doesn't make sense to have deficits that are still 5 or 6% of GDP at this juncture. And there's a risk from a fiscal standpoint. But for all that grumbling by me, let's be happy that the line is pointing up, not down right now. Okay.

Time left in this economic cycle: Quick comment on just where we are in the cycle or how much time is left and it's very loose. But I want to run you through a little thought exercise here, which is, coming out of the pandemic, it seemed likely there would be a very, very short business cycle.

We didn't think there'd be more than a few years of this expansion. But we've been wrong, by the way. So it looked likely to be quite short. And the reason was you had just massive, unprecedented fiscal and monetary stimulus that was ultimately overheating and supercharging growth. And you ended up with way too much inflation from 2021 to 2023.

And the unemployment rate, raised from a generational high of double-digit numbers to a generational low. In the U.S, it was 3.5% by 2022, so overheating. You then had central banks say oh-oh and do aggressive monetary tightening, rate hikes, you'll recall, in 2022, 2023. It is vanishingly rare to avoid a recession when those things are happening, when you've got super high inflation, unemployment is too low.

And emergency rate hikes almost are happening. Nine times out of 10, conservatively, you end up in a recession. And we didn't. The “impossible” happened, which is a whole lot of recession models were wrong. It's pained me greatly to throw those into the trash heap or at least downgrade their certainty. And the economy kept growing and unemployment did go up. Other times unemployment goes up and it's just a slippery slope into a recession.

That wasn't seemingly the case this time. In fact, tentatively, very tentatively, we've seen a stabilization at a fairly normal level, if not as low as before, and inflation has fallen and no one loves where it is right now. It's in the high twos. It'd be nice to be 2.0 on the button.

But it's down from eight, nine, 10% and it's even down from the threes as of just a few months ago. And so that that's getting in order. And the Fed and indeed some other central banks have lowered their rates from quite restrictive to less restrictive or even in some cases beyond that level. And so, it would appear all of that has bought us more time.

We're not obviously at the very tail end of a business cycle anymore. And so I've used this word too much now, but it's a fairly benign environment. It would suggest you could grow a number of years from here. And so the usual caveat: things happen policy errors, exogenous shocks, wars, market surprises and so on. But overall, you would think, yeah, this economy can keep growing this year, can keep growing next year.

It may not sound like the most impressive thing to claim. Economies normally do grow. But boy, that didn't look very likely a few years ago, and it's worth just stepping back for a moment and thinking across the sweep of those 4 or 5 years and recognizing how weird and unusual it all has been, and how we've kind of come out the other side not looking too too badly, at least to my eye.

For all that happy talk, I wouldn't want to leave you feeling too good about the world. And so, downside risks, of course, there's always risks. There are upside risks, too. It could be better than expected. Geopolitical problems could go away. You know, there's all sorts of wonderful things, too. But it is worth recognizing there are some acute risks, and we shouldn't ignore that.

Downside risks: So there is risk related to the White House. Again, President Trump moving awfully quickly lately, so there is the risk of a policy error. And that risk goes up when there's so much action.

There has been seemingly some politicization of traditionally non-political decisions. And so that's a risk as well.

Obviously, geopolitics are in play in Venezuela and Greenland, but you wonder about as I mentioned earlier, Cuba, Panama, Colombia, Canada, add Iran to that, add support for Ukraine or lack thereof.

So there are still some pretty important questions there. And some of those do rebound into markets and into economies a little bit. There are AI risks. In general, we think CapEx can grow. In general, we think productivity can rise. But what if it turns out that there's been mal investment and the CapEx slows and you take that out of the economy?

And what if the valuations therefore are too high and there's a bubble and it bursts? None of this is our base case forecast. Lots of question marks you'll note in here. But there are scenarios in which that happens. What if AI development hits a dead end? It went pretty far down this path.

But what if that's not ultimately the path towards artificial general intelligence? There might need to be a couple of steps backwards and then pivoting in a different direction. Maybe we don't get the productivity gains we're hoping to get. Maybe there's too much hallucination going on to just incorporate these things into business decision-making in a mechanistic way. Ultimately, maybe AI works great, but there are big job losses that result.

So not to get too negative on this, but you know, there are big question marks here, as much as we are net positive on it. And then just bond yields as well. Right. There are big deficits. There are big debt loads. The inflation situation is looking better but it's hardly fully sorted. And you know the trust in the U.S. has declined.

There is a risk of higher yields, which in turn would be a headwind to the economy. So, very much in the risk department, not the base case.

I'm not doing a good job of highlighting the upside risks. But let's acknowledge we don't have a perfect read on where things go from here. Okay. A couple other things.

Maybe more than a couple of other things. I'm sad to say.

China imitator  à  China innovator: A couple thoughts on China. So again, Chinese growth is not that great right now. We've seen, if anything, a slowing of consumer spending, still weak housing CapEx has come off. So I'm being a bit tricky here and not focusing on that. But we ultimately do have an above-consensus economic growth forecast for China for 2026, for 2027.

I do want to try and articulate one of the big reasons why. And here’s a really, really busy slide in front of you. So China was long an imitator, sort of copying technologies, just what poor countries do when they're trying to catch up. China did a great job of catching up. China is now clearly an innovator. That was the question.

Would they be capable of making that pivot of creating new, superior things? The answer seems to be yes. Whether you're looking at the auto sector or batteries or solar or pharmaceuticals or robotics or – and then this is now maybe not at the forefront, but moving quickly – semiconductors and AI. And it seems as though they are.

And you're looking at these charts on the left, really, the arrow almost does a disservice. So the arrow says, well, productivity growth has been slowing a bit, but I would say conversely, China is massively richer and more advanced than it was, you know, 10 and 20 years ago. And yet the productivity growth rate is almost as fast as it was.

It's still about 5% annual growth. That is the feeling the average Chinese person feels in terms of their rising financial prosperity. Now, the fact that GDP growth is more like four point something, that's just because the population is shrinking. The average Chinese person isn't suffering from that. They're enjoying this per capita gain. So productivity is rising quickly.

There is real innovation happening. And then on the right side is actually a measure of just in dollars, in raw currency, the amount of money being spent in each country on research and development. You can see, first of all, scale does matter. If you're a huge country like the U.S. or China, you are definitionally going to be doing more research and development, which is a huge advantage.

But take a look at that Chinese line rising very quickly, even faster than the U.S., even though the U.S. is doing all sorts of incredible AI work right now. You can argue within a couple of years those lines could intersect, and China could be the country doing the most raw research and development. And that's pretty promising for China's outlook.

To frame it a bit differently, China's only the world's 73^rd-richest country in terms of GDP per capita, in terms of productivity levels. And yet, kind of bizarrely, they would appear to be at the technological frontier or very close to it. And we have lots of metrics saying at worst China is number two in any of these regards, and that's kind of a weird disconnect.

It would suggest there's a lot of room for Chinese incomes to rise, and Chinese economic growth to continue just to fully deploy the technologies they've succeeded in creating. And so it's again a fairly optimistic long-term economic comment.

The other thing I wanted to share with you, this is the next set of charts.

China’s new economy looks promising: Chinese AI models on the left. This is a metric looking at really the relative proficiency of these fancy new artificial intelligence models. So China is below the U.S., that's important, but they’re seemingly narrowing the gap. And it should be said, seemingly narrowing the gap while spending a fair amount less on CapEx. And with their stock valuations of their technological champions not nearly as lofty as in the U.S.

And so, they’re doing pretty well there, even though they aren't the market leader. And then similarly, or maybe even more so, on the right side, this is just a measure of car exports by country. China now exports the most. It's a bit of a flawed chart just because, for instance, Japanese car companies make cars within the U.S.

That's not an export yet it's still very much an international car company enjoying great success. So I'll take this with a grain of salt. Nevertheless, China – really in the last 5 or 6 years – has suddenly become a major car exporter, produces the most cars in the world, quite advanced. A lot of them are electric cars.

A lot of them are actually quite well reviewed. So they're not of a particularly low quality. This is an important sector that China is now coming out, guns blazing on and seemingly succeeding to a remarkable degree. So ultimately, some positivity on China.

And then a couple quick words on Canada here, as I press my time constraints.

Canadian labour market may not be as strong as it looks: And so one would just be officially, Canada has generated a surprising number of jobs across 2025: 211,000. In practice, we're not sure. First of all, it doesn't make a lot of sense given the economy wasn't moving very fast. Second of all, there's an alternative survey which argues that, in fact, there have been no jobs created.

So we're not sure which of these is correct. We might split the difference or say it's somewhere in the middle, but we don't think the labour market is quite as strong as it's looked. So that's a little word of caution. It’s why we're a bit more sympathetic to Bank of Canada rate cuts, why our economic forecast for Canada is a little bit below consensus.

Small Canada-China agreement – electric cars and canola: I should celebrate – I guess back to trade deals – that Canada-China agreement. Just to put it into context, though, and so, this is a measure of Canadian electric vehicle imports. So Canada imports quite a bit. For a moment, Canada was importing a non-trivial number from China in 2023, 2024. Then that 100% tariff got put in alignment with similar U.S. policy.

China punched back with a canola tariff, among other things. And so Canada essentially imported no Chinese electric cars in 2025. It looks like we will get back to essentially to the prior trend. The 49,000 is a new quota that's been assigned. And so, back to that incrementally positive. We will see if there are any kind of factories that get built in Canada.

You wouldn't think that kind of scale would be nearly enough. But perhaps there will be more. I would still think it's going to be tough going for the assembly sector in Canada for a period of time. Okay.

Canada GDP outlook – looking brighter in 2026 : My last real chart here, and so what do we do with that? Certainly there are some challenges in Canada. There’s the threat of the USMCA and whether a decent trade deal is struck and maybe underwhelming job creation, in contrast to the official numbers, and a number of issues, really. However, we do see some rate cuts that have taken place that are still set to be beneficial.

We see a budget that was fiscally stimulative. In fact, another round of tax cuts was announced for low-income GST rebate recipients just in the last few days, as I record this in very early February. We do think there's room for the Canadian economy to pick up, even though we're not technically above consensus in our forecast.

This is the quarterly profile we think it could take. It's obviously very stylized and loose, but we think probably no growth in the final quarter of 2025. If anything, a slight decline looks likely now. Probably nothing to write home about in the first half of 2026, but probably a return to growth and then maybe a return to somewhat more normal-looking growth in the second half of 2026.

So looking better without looking outright good would be the way that I would describe it.

Okay, I'll stop there. I thank you for sticking with me. If you want more, improbably, do follow us online. You can check out our website, rbcgam.com/insights.

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And so I'll say again, thanks so much for your time. I wish you very well with your investing, and please consider tuning in again next month.