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

As this colorful title suggests, there is a lot going on in the economy right now and indeed a bit of a battle royale between some economic headwinds and some economic tailwinds.

On the headwind side, of course, we are still grappling with tariffs. Indeed the U.S., as we speak – and this is being recorded October 27th – is still in a shutdown. Those are headwinds, of course, versus monetary stimulus.

We have central banks, including Canada and the U.S., delivering rate cuts, which are helpful. It should be noted with particular relevance to the U.S., that there is quite an artificial intelligence CapEx boom going on right now, which is, of course, a pretty important tailwind on the net.

00:00:56:14 - 00:02:03:07

We've actually been tilting our economic forecasts a little bit higher as opposed to lower in recent days, but nevertheless lots of nuance to that. And so let's work our way into the details.

Report card: We'll start with a report card of sorts. Let's just run through some of the broader interesting and positive and negative things going on right now.

And so just to revisit that comment on monetary stimulus, we do have central banks, broadly speaking, back to a bit of rate cutting. And it looks plausible there may be a bit more in 2026. And it's worth keeping in mind that rate cuts operate with something of a lag, such that even to the extent that we're seeing some cutting toward the end of 2025, that should actually help 2026 growth, non-trivially. So that is a helping hand.

I can say as well – again, with relevance to the U.S. – as per the title, we are seeing quite a artificial intelligence CapEx boom. It has significantly helped U.S. growth in 2025, maybe helps a bit less in 2026. But still on the positive side of the ledger for sure. As we think about economic forecasts and acknowledging all sorts of complications and shutdowns and so on, we do believe in a U.S. context recession is likely avoided.

00:02:03:07 - 00:02:41:01

We're budgeting for fairly modest growth for a quarter or two, but ultimately growth and then perhaps even accelerating growth as we work our way deeper into 2026.

I should probably give a nod of the head to Canada as well. It's probably a little bit less straightforward to say no recession in Canada. The country has already had a quarter of declining output and the labor market is no great shakes.

Nevertheless, we are still forecasting very modest growth over the next few quarters. And so we think, more likely than not, Canada can avoid a recession, but with a bit less conviction than with regard to the U.S.

On the subject of tariffs – and tariffs don't normally show up in the Positive Themes column – you're going to see them in the negative one in a moment.

00:02:41:01 - 000:03:18:12

But I will say that tariff-driven hits to GDP (gross domestic product) and to CPI (Consumer Price Index), to inflation, are proving a little bit lighter than feared. We're just not getting the full magnitude of damage. I'll try to talk through a bit of why that might be a little bit later.

One other positive is just that oil prices are lower now. That's not a positive for oil producers, obviously, and it's at best a mixed blessing in a Canadian context.

But I can say globally, inflation runs a little cooler in this kind of environment. And globally, the economy generally likes it when a key input is a bit cheaper. So that is prompting us to upgrade our growth forecasts for a fair swath of the world for 2026.

On the negative side, well, there are some negatives here too.

00:03:18:12 - 00:03:39:21

The first is that, again, as we speak on October 27th, the U.S. government shutdown continues and it is increasingly looking as though it may set a record for a length that does some temporary damage. There have been some new U.S. tariffs that have arrived on lumber and on trucks over the month of October. Canadian trade negotiations with the U.S. are struggling right now, to put it mildly. And so more on that in a moment.

We are still seeing what I would describe as an economic deceleration in the U.S. – not to recession, as I mentioned earlier – but nevertheless the economy is underperforming, at least, which isn't absolutely ideal right now. And we are seeing corporate margins, we think, start to compress a little bit due to tariffs.Companies are absorbing a fraction of the tariffs themselves.

I mention that simply because, of course, this is a forum for investors. And so investors might be suffering a little bit less on the profit side because of those tariffs.

And maybe lastly – and I'll speak to this very shortly – we're also watching market fault lines. There have been a few recent events in the credit space.

00:04:18:07 - 00:04:54:22

The question is whether those are idiosyncratic, or whether they could speak to broader fault lines, broader issues in financial markets.

And then lastly, on the interesting side, we'll talk in a moment about the K-shaped economy. That is really a reference mainly in the U.S. to the rich versus the poor households. Wealthy households are doing fairly well. Poorer households are not doing as well right now – and what that means.

We'll also spend a moment right at the end just looking at countries around the world according to their income levels and what that means in terms of growth outlooks – and we’ll cluster them into some different groups, in terms of countries that are looking pretty good, in countries that aren't looking quite as good.

00:04:54:22 - 00:05:53:14

Okay, that's the plan going forward. Let's now pivot into what I might call the picture show, and we can talk in a bit more detail about some of these topics.

On alert for fault lines in markets: Let's start on the market side. Recognizing you're listening to an economist right now, and so not the final authority on these sorts of things, and certainly not right down to individual corporate names – but here we are on alert for fault lines in markets.

You can see the chart in front of you does reveal, at a bare minimum, that there has been some significant stock market volatility in recent days and weeks –although equally, as I record these words, the market is back to record highs. So hardly weighing too badly.

But still there are debates being had in markets as to whether there might be problems beneath the surface. So, we are seeing a jittery stock market despite record highs recently. We are seeing some concerns about sovereign debt – just the observation that there is a lot of fiscal excess and deficits and public debt and so on. Though, it should be noted, long-term bond yields have actually come in recently, suggesting perhaps a bit less concern or at least a bit less focus in that space.

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And then credit concerns, these are maybe the most valid of the bunch. Now, just as initial offsets, let's say credit spreads are still very narrow, so hardly expressing a great deal of concern. I can say that private debt – which is an area of focus and perhaps an area of some concern right now and not particularly visible to the outside world. Actually, when you measure this properly, we can say non-bank lending – and private debt is exactly that –it’s not really rising as a share of GDP. It's not as though it's skyrocketed in the last 5 or 10 years. And so it's not obvious that it's a bigger problem or a more important element of the economy than in the past.

But, there have been some recent problems. And so the debate is, are they idiosyncratic, just individual companies running into trouble, or not?

And so, Tricolor is a company that recently ran into credit problems. Some of that may just reflect subprime debt stress. That could say something about an economy that is maybe indeed stressed, particularly for lower income households.

But there may have also been an element of fraud, to be determined. And indeed, the federal crackdown on undocumented immigration, undocumented residents more generally, has probably hurt this company. This company actually had a business model that catered to that kind of borrower. And so not clear that we can say this is a broader economic issue.

00:07:05:23 - 00:07:58:07

Similarly, the other recent credit event with First Brands, and so perhaps reflecting private debt problems. It’s of course concerning if there are broader problems within that space and we don't know that right now. But there may have also been some fraud here, at least there are some allegations to that effect.

But also, this is a company that deals in auto parts and of course it can't escape notice that the auto sector in North America has been significantly tariffed. And so perhaps not a great shock that these sorts of companies are struggling.

For the moment, it looks to me as though there may be a significant element of idiosyncrasy here, meaning that it's not clear. These are the tip of the iceberg in terms of credit problems. All the same, worth watching. And I would say there is a higher level of concern, and we are perhaps exhibiting a slightly higher level of caution in terms of our own investing and decision making as well, just as we watch for further signs of distress.

00:07:58:07 - 00:09:11:28

Okay, let's move into the economic data for a moment. And just recognizing, I suppose, that we have had a shutdown ongoing and that new tariffs were announced as mentioned.

San Francisco Fed’s U.S. Daily News Sentiment Index: We do look at a daily economic news sentiment in the U.S. and it's worth flagging these two events have weighed on sentiment. You look at this chart, at the far-right side, there has been a significant retreat.

So let's not underestimate the effect of these recent policy decisions and policy outcomes. All the same, when we look at the economy more broadly a little bit later, we're seeing really just a mild deceleration as opposed to something much larger than that.

U.S. government shutdown: Okay, let's talk about the shutdown. And again, it's ongoing as I say these words at least.

And so of course, Republicans and Democrats failed to reach a budget agreement by October 1st, which was the start of the new fiscal year. And so the government shut down. It’s only non-essential work that halted. About three quarters of a million workers were furloughed. Other workers are deemed essential, and they continue to work. Do note they're not being paid, though they'll be paid later.

The workers furloughed will be paid later as well. But the essential workers who are working right now are not being paid. And I mention that in part just because essential workers get grumpy as they work without pay, at least temporarily. And so often that can prove to be a pressure point, as I'll get to in a moment.

00:09:11:28 - 00:10:10:02

The longest shutdown in U.S. history was actually the last one in 2018-2019. It was the first Trump term. It lasted 35 days. We are on day 27 or 28 as I say these words and markets are currently betting that this one lasts longer. This one maybe gets resolved around the middle of November very loosely, and so perhaps ends up being in the realm of 30-45 days, as opposed to something less than that.

Usually, financial markets don't pay too much heed to that. I would say that's actually been the experience this time. If you made me pick directions, I'd say weaker stock market, lower bond yields, lower U.S. dollar. But really those have not been the dominant considerations. And to the extent shutdowns are temporary, usually such movements are temporary as well. So I don't think that needs to be the primary focus right now.

This shutdown is more intense than the last shutdown, meaning all 12 budget appropriations areas are shut down, whereas last time it was only five of the 12 that had failed to reach an agreement. So it is a bigger, a broader shutdown.

00:10:10:02 - 00:11:11:29

The length, of course, is uncertain, but betting markets are arguing 30-45 days, which would argue probably a record length. Neither party particularly incented, neither party particularly in a hurry to strike a deal here or to cave, you might say. But as I mentioned a moment ago, pressures are starting to build a little bit because essential workers, even though they will get paid eventually, they don't love working without upfront pay.

Usually what you see – and this has happened in prior shutdowns – is airports start to bog down as air traffic controllers take sick days or as security workers don't show up. And so the pressure does build. And so that's one of the reasons why there should eventually be a solution. The economy is about 1% to 1.25% smaller while the shutdown persists.

So to be clear, this is not to say the economy is that much smaller for the year by any means, just for the period of weeks during the shutdown it's that much smaller. We'll have to do a bit of fancy math when it's over to see the overall damage. But I would say at this juncture, we're subtracting about a percentage point from our assumed fourth quarter annualized growth rate.

00:11:11:29 - 00:12:07:26

So if it might have normally been 2 or 3%, it might instead be 1 or 2%, that kind of thinking. And of course, something only an economist would care about is that the U.S. economic data is not being released right now, which makes our jobs somewhat more complicated. We're doing our best, and we think we're doing a reasonable job of looking at alternative indicators.

And they would suggest that the economy is decelerating a bit. But the economy is certainly not collapsing or anything like that. Of course, it’s worth remembering the economy bounces back once the shutdown is over. We're budgeting for faster than normal growth in the first quarter of next year as that process happens.

And as mentioned, furloughed workers and indeed essential workers do receive back pay. So ultimately, they are not too much the worse for wear, other than, of course, having some liquidity problems in the short run.

Okay. Let's shift over to tariffs. And I do apologize. No one wants to see lots of text-heavy, tables consecutively. But here we are nevertheless.

And so let's just run through some of the key tariff developments recently.

00:12:07:26 - 00:13:29:19

Tariff developments: One would be we are seeing significant U.S.-China frictions. And indeed the U.S. threatened an extra 100% tariff on China. And China's perhaps slowed down the export of certain essential goods, minerals and so on. And so frictions are high. There are meetings going on over the next week that may yet ease those to some extent. I'll just say our working assumption is that 100% tariff is not applied, the extra 100% on China.

Equally, we're not expecting a miracle deal that eliminates a significant fraction of the existing tariffs. We think there'll be incremental progress, if any, made on that front.

U.S.-Canada negotiations have certainly hit a speed bump. And I'll get into that in a bit more detail in a moment. But there has been a pause in talks as I'm recording these words.

Add an extra 10% tariff has been threatened by the U.S. on Canadian goods entering the U.S. But again, more on our thoughts there in a moment.

There are also some new sector tariffs. And so steel and aluminum tariffs were widened, covering more goods, more sort of down-stream goods timber and lumber. Tariffs have been applied and some specialized products are being hit even more hard.

I can say that there's a 25% tariff set to be implemented on November 1st on medium and heavy-duty trucks as well.

And then pharmaceutical tariffs have gotten a bit blurry. They've been threatened. They haven't been implemented. It looks like most pharmaceutical companies will probably be able to dodge them by committing to create manufacturing facilities in the U.S.

00:13:29:19 - 00:14:10:11

And then I guess the other tariff thought to share is with tariffs rising incrementally as opposed to falling here, economic damage has been fairly mild, less than feared, at least so far. But I would say less than feared overall is perhaps not an unreasonable claim as well.

And then more inflation from tariffs for the U.S., for the country implementing the tariffs, but also a little bit less than feared so far, though we are seeing some margin compression coming from the tariffs, which then just hurt a different part of the economy.

Okay. My last wordy table, I think. Let's talk about tariffs in a Canadian perspective. And so lots going on here. I just want to be fairly thorough again recognizing this is a point in time comment.

00:14:10:11 - 00:15:39:07

Canadian tariff thoughts: To begin with, Canada does have an average 7% tariff rate as implemented by the U.S. on Canadian exports to the U.S. And so just to summarize that, of course, it's a 35% tariff. Maybe it'll be a 45% tariff based on this new threat from the U.S. But really only on non-USMCA compliant products, which is a pretty darn small fraction of what Canada sells.

So, not to say it's trivial, but it is quite a small fraction. The bigger hit is coming from tariffs on steel and aluminum and copper. And now these new lumber tariffs, some tariffs more selectively applied on autos and now trucks for Canada as well, just a value-added portion is our understanding.

Canada had been punching back, Canada punching back less right now in terms of retaliatory tariffs.

But let's look forward. This I think is the key question. And so Canada has made quite significant concessions to the U.S. on border control and military spending and the digital services tax and on retaliatory tariffs as well in terms of scaling those back. The U.S. still has no shortage of complaints and demands – and so complaints about fentanyl flows and supply management and Canada's trade surplus.

And just the fact that Canada assembles autos in this country. And also, I guess, aspirations that Canada join the U.S. with missile defense in terms of the Golden Dome or something like that. So there are more asks that remain on the table.

The Canadian government has signaled that the deal won't eliminate tariffs altogether. Perhaps there's room for some improvement, but not a total return to pre-2025, it would appear.

00:15:39:07 - 00:17:17:07

Canada is still trying to negotiate with the U.S. There have been some pretty clear recent speed bumps and indeed at this moment the two countries are not talking. There had been hope – I think there is still hope – that there may be a near-term deal that will lighten the tariff burden on steel and aluminum, probably linked to some sort of quota system, but ultimately a lower-than-50% tariff on those products.

And then, of course, the big question mark, and this is why trade policy uncertainty hasn't declined in a Canada-Mexico context, even as it has in many parts of the world, is just that the USMCA trade deal is set to be renegotiated at some point in the future. Officially, sort of mid-2026 kind of timing. This is really important.

It's just hard to say anything intelligent about this because there are so many different ways it could go. A worst-case scenario would be tariffs on practically everything Canada sells to the U.S. And that would be, of course, very painful. Even worse would be if service sectors were suddenly targeted as well, as has been threatened on a few occasions. It’s not our base case, but that's the worst-case scenario.

The best-case scenario was something not too dissimilar to where we are right now, which is the USMCA survives, but it does formalize some of these sector tariffs recently introduced and potentially could further constrain the auto sector, where the U.S. does seem quite insistent on reclaiming something approaching all auto assembly in particular.

But then a best-case scenario, which would be notably better than where we are right now, is the USMCA persists, and several sector tariffs are lifted or significantly lightened in a way that improves the situation relative to where Canada is right now. And of course, Canada also at the same time looking to diversify its own trade ties, to strengthen trade ties with other countries.

00:17:17:07 - 00:18:19:00

We are budgeting, certainly, for some ongoing tariff pain from all of this. So that best case scenario really isn't too, too much worse than where Canada is right now. And so it would be closer to a status quo kind of outcome.

Okay. Let's keep moving forward here. And so one thought would just be – and I've mentioned this a few times, but without visual support – is that as much as the American consumer is bearing some of the burden from tariffs, we're also seeing foreign manufacturers eat some of the costs.

Tariff pain being spread around: And shown here we're seeing U.S. companies eat a bit as well. So this is U.S. wholesale and retail margins. You might imagine this is a set of parties who would be faced with the consequences of those higher tariffs. This is a ‘you have to squint your eyes’ kind of chart because on the far-right side you'll see a line that would appear to be declining.

And I think you can say it’s the lowest that we've seen now going back something like a year. And so it’s still up for debate whether this is purely related to tariffs, certainly up for debate whether that downward trend persists. I would say some corporate anecdotes would suggest that indeed tariffs are compressing margins and so on that front perhaps we will see some further decline here.

00:18:19:00 - 00:18:35:17

And so I mention that again to help to understand why it is that the U.S. consumer isn't getting walloped by the full extent of the tariffs. But equally, of course, for investors that would suggest that maybe profits don't get to grow quite as quickly due to the tariffs.

Okay. I want to just take a quick look at global trade here, both nominal and real.

Decent trend in global trade despite tariffs: I just wanted to flag this, which is for the moment we are still seeing growth in global trade. You might have imagined this era of tariffs would immediately interrupt that. It is importantly interrupting that when we're talking about U.S.-specific trade flows, but there seems to be enough growth elsewhere.

And some of that is countries pivoting to other markets. And some of that is organic economic growth.

We are still, somewhat surprisingly perhaps, getting higher global trade. Let's see if that can continue over the next six months or so. But for the moment, it’s holding together perhaps surprisingly well.

Chinese exports find new destinations: This next chart really just looking in on Chinese exports and so really recognizing, of course, that the U.S.-China trade relationship has deteriorated.

00:19:12:24 - 00:20:09:27

And so what do you know, that yellow or gold line at the bottom is trending downward. We are seeing a significant decline in Chinese exports to the U.S. So that is tariffs working, you could say, interfering with economic activity.

What's interesting, though, is if you look at other markets, they're rising pretty significantly.

And so of course, they're not impeded by tariffs. But there's also this other incentive to shift Chinese extra capacity to other markets. And other countries are just looking for new trading partners, of course, as the U.S. proves a little bit less reliable. And so actually, after a period of a few years in which Chinese exports ex-U.S. really weren't growing, they weren't growing much in the U.S. either.

We can say that we are back to seeing pretty decent growth. And these other markets are becoming outright significantly more important to China. So it’s part of the story where the Chinese economy, in our view, doesn't get hit too badly by U.S. tariffs simply because it is reasonably diversified.

And so here's really the one chart I have just on the general U.S. economic trend.

00:20:09:27 - 00:20:50:08

U.S. economic data is moderating but not crashing: And so downward, we are seeing some deceleration. It's choppy. And so sometimes it overstates the decline. Sometimes perhaps it understates it. But we're seeing what we think is a mild economic deceleration. We are budgeting for economic growth that runs a little bit cooler than normal. And indeed one that might open up a little bit of extra economic slack in the U.S. over the next few quarters without being a recession.

I should mention we do then have some acceleration later next year as rate cuts kick in, as tariffs are more broadly absorbed, as there is still some support from AI CapEx and that sort of thing. And so looking for growth still, but it's a bit less in the next few quarters. And that's the tentative trend we can see right now.

00:20:50:08 - 00:22:26:03

Unemployment now exceeds job openings for the first time in several years: Just on the labour market side, it's certainly drawn a great deal of attention that the U.S. job market isn't generating jobs. And we have to speak a bit speculatively because the September number wasn't released due to the shutdown. But some alternative indicators did suggest that hiring was either roughly flat or only slightly up, or perhaps even slightly down.

And so the labour market is notably underperforming. This is just one different way of looking at that. And so what you're looking at here are two things.

The unemployment rate in dark blue, which in the U.S. has been trending a little bit higher, though certainly still within

And then job openings in light blue and the job openings, I guess, have been the bigger mover, but they've been coming down, notably. We've seen unemployment rise a little bit. And as it happens, those two lines have just intersected. They've just crossed over. And so we are back to having more unemployed people in the U.S. than there are job openings.

Now, I must say that is the normal state of affairs. It was quite unusual in recent years that it was the opposite situation. There do seem to be some technical thoughts, that maybe in an internet job posting era, the cost of posting a job is so low when companies are just sort of dangling an opening out.

There may or may not exist a job. It probably doesn't exist unless the absolute perfect candidate comes through and then they hire. It's a bit different that it used to work when you posted a job opening in the newspaper, I suppose. And so probably structurally this relationship is just a bit different than before.

But either way, just looking directionally we can say the labour market has weakened. There are fewer openings, there are more unemployed. They have crossed over. And so this is a labor market that is beginning to show perhaps, or about to show, a little bit of slack. So unemployment rate a little higher than we'd like to see it in an ideal world and helping to motivate Fed rate cuts.

00:22:26:03 - 00:24:40:08

Just another quick look.

U.S. labour market is soft, but jobless claims say not too problematic: And so, the reason some of these bars are dark blue is because we have had to impute these because of the government shutdown, there is no national estimate of jobless claims. But we still have access to 50 states, that offer individual state jobless claims. And so we can tally those up. And so that's what we've done.

I guess you can say maybe there's a slight upward trend and that would be actually consistent with my prior comments on the labour market. But equally, I'd say we're not seeing a collapse here. It's not as though the economy is falling over secretly since the data stopped being released. We're getting perhaps a slight deterioration in the labor market.

Okay. And so one other labour market thought. I'm just hitting hard on this one. Just some interesting charts to look at here.

Weirdly stagnant labour market – low hiring and firing: This is another way of slicing things, and it really speaks to, as the title suggests, a weirdly stagnant labour market.

And so this is a dot plot that shows the relationship between hiring and really firing or laying off. And so often when the economy is very strong, you spend time in perhaps the bottom right quadrant, and there's lots of hiring and very little firing or laying off.

Of course, sometimes, unfortunately, you're in the top left quadrant. The economy is weak. And there's not a whole lot of hiring, but there's a lot of laying off going on.

Most of the time, you're somewhere in the middle. Of course, interestingly and unusually, I guess, weirdly, as we said, this time we are in the bottom left quadrant. And so that is to say, there's not a lot of hiring.

There's also not a lot of laying off. And that's not normally the case. Normally you get a lot of one and not much of the other. And so, what explains that? Well, a couple things.

One is we think that your businesses are braced for economic weakness or not hiring. But the economy hasn't actually been as weak as they'd feared, so they haven't had to lay off in a significant way.

So it's just a sort of a funny waystation where businesses are in this temporary space of not doing either. And so I think that's probably not a bad way of thinking about it. You could argue, perhaps that AI is also starting and we noted this before in certain very specific sectors of the labour market, AI is starting to perhaps eat a little bit on the job side. It is notable that a lot of businesses are thinking that they can expand their output or their sales or their revenues and perhaps their profits, and yet don't think they need a lot more workers.

We'll see if they can actually pull that off. You might think that is an AI-related thought process.

U.S. consumption a source of recent strength, but should slow with anemic hiring: And then just a word on consumption. This is monthly consumer spending changes. And I would focus more on the blue lines, truthfully, since they are the real numbers here.

00:24:40:08 - 00:26:04:04

And so you would start by saying the last few months have shown pretty good real consumer spending growth – as much as we're now starting to miss a little bit of the data given the shutdown.

What I would say, though, is that we are budgeting for slower consumer spending growth going forward. That's significantly a comment that there's not a lot of hiring going on.

And so we shouldn't expect quite as enthusiastic consumer spending. Now, don't get me wrong. And here let's go to the next chart to support what I'm about to say.

Lower- and middle-income Americans hit hardest by tariffs and tax changes: This is a K-shaped economy. So the K is referencing the upward slanting part of the letter and the downward slanting part of the letter. The upward slanting part would be wealthier households in the U.S. and the downward slanting would be less wealthy households in the U.S. – the point being that the wealthier ones are doing better.

Of course, to some extent that is a universal truth. But it’s what we're really saying versus, let's say, a year ago or something like that.

This chart looks at what's happened to different households according to income decile. The lowest income households on the left have actually seen a significant increase in pain from tariffs because those households spend a larger fraction of their income. They also spend a larger fraction on goods which can be tariffed and, conversely, tax changes.

And so the tax changes have disproportionately hurt the lowest income Americans. They've actually, in some cases, net helped higher income Americans.

And so you sort of tally that up and you would say it makes sense that higher income Americans are still feeling pretty good. It makes even more sense when you tack something else on, which is the stock market wealth effects.

00:26:04:04 - 00:26:42:03

It's higher-income Americans who have a lot of stock market holdings, and the stock market has been up a lot.

Lower income households not feeling as good. So consumer spending, the economy, very much being supported by higher income Americans. Lower income are not feeling very good at all right now. It's not that we think that's about to collapse or anything.

Higher income households have genuinely benefited from these recent policy changes. The stock market is genuinely higher. We do assume they can continue to contribute to some degree to consumer spending growth.

But there's a bit of vulnerability there when you're counting on a pretty small fraction of the consumer base to do the spending – particularly when that consumer base in turn is counting on the stock market staying high. And it's hard to say whether it can continue to make the kind of gains it's made recently going forward. Hence perhaps slower consumer spending growth.

00:26:42:03 - 00:29:05:21

AI cap ex boom supported U.S. economy in 2025 : Let's acknowledge another support for the U.S. economy, which has been we've had a lot of CapEx coming in the artificial intelligence (AI) space. This is specifically Magnificent Seven capital expenditures. And if you focus in on 2025, which is sort of the middle of this chart, it has its own bar. You'll see on that red line, 57.6% CapEx spending growth from these companies in 2025.

So this has been a huge boom. Last year was a boom too. It's been a huge boom. We would estimate, probably conservatively, that the U.S. economy grew about half a percentage point faster than otherwise in 2025 due to this.

This is part of the reason why the tariff blow hasn't seemed as bad. You've had this other source that's been helping to boost U.S. economic growth.

The question obviously then is can this be sustained into 2026? So on the surface you would say yes, actually, bottom-up analysts are saying that they think there will be even more CapEx in this space in 2026 – and indeed in 2027 and in 2028 – than in 2025.

However, keep in mind, if the question is can CapEx continue to drive economic growth to the same extent? The answer is probably not.

Because the leap higher from 2025 to 2026 isn't as big as a leap higher from 2024 to 2025. So you have to look at growth rates here. The thinking is that the AI CapEx grew 57.6% in 2025. It may only grow about 21% in 2026 and could grow even a bit less quickly in subsequent years.

Now, to some extent, analysts are just penciling in numbers here. They don't have a clear sense. Maybe it'll exceed their expectations yet again.

But at least on the surface, if these are the best estimates, you would say CapEx should continue to drive growth next year, but probably not as much. So maybe the economy gets to go a quarter point faster than normal because of this AI CapEx in 2026, instead of the extra half percentage point that it got in 2025.

So a helping hand still, but not as much.

Of course the other question, and really the whole purpose of all this AI is to boost productivity. And so we're waiting to see is productivity actually going to be enhanced? And of course that can be another source of growth. It should, over the long run, be the main source of growth.

It's not all about buying computer chips. It's about making life easier and things more efficient. And on that front, companies seem to be somewhat optimistic that they can become more efficient. We'll see if they actually can.

Our long-term forecasts do assume they succeed to some extent. We're just not sure how quickly or by how much at this juncture.

00:29:05:21 - 00:30:18:03

The general trend is toward less restrictive monetary policy: And then just touching in on monetary policy for a moment, central banks are generally pivoting back toward rate cuts, certainly North American ones are. The U.S. Federal Reserve (Fed), the Bank of Canada both delivered a cut in September. They’re expected to deliver another cut over the next few days as I'm recording these words in late October.

For the U.S., perhaps there’ll be another cut again in December and perhaps even further into 2026. And so, again, we're seeing some monetary stimulus in the U.S. You can justify it by saying the economy is wobbling a little bit, though equally, with inflation significantly offside, it's not clear the Fed needs to do too much, but it's just starting from a higher starting point so they can get away with a bit without actually going into outright stimulative territory.

For Canada, I'm personally sympathetic to a bit more cutting than the market currently thinks, just in the sense that this economy is running with significant slack. Inflation isn't that much higher than target. Yes, the overnight rate is already down to the mid twos. It’s already a bit stimulative, but I don't see why you can't go a bit further than that.

And I guess the point here is, again, at least in this North American context, perhaps with the Bank of England doing a bit of additional easing as well, there should be something of a tailwind to growth in 2026 as that monetary stimulus plays out.

00:30:18:03 - 00:30:38:11

Grouping countries by income and growth outlook: I'll finish with this, which I think is a fascinating chart. I'm sure we could spend all sorts of time here, and you're always welcome to click pause and study this in more detail yourself. But as we think about long-term growth expectations, as a very loose rule of thumb you would say the poorest countries are usually in the best position to grow, because all they need to do is to copy the best practices of the richer countries.

Richer countries generally aren't in quite as good of a position to grow quickly going forward. And so to some extent, this chart speaks to that.

Just to be clear here, the X axis, the right-to-left axis, is speaking really to the current income level of countries. So rich countries are to the right. Singapore is the richest, and Ireland. And you see a big cluster with the usual suspects: U.S. and Canada, Europe, Japan and so on.

Poorer countries are on the left here. But the other axis is actually the IMF (International Monetary Fund) forecast. We don't forecast every country in the world, so we've leaned on the IMF growth forecast over the next five years.

And so, again, this is a very loose rule of thumb: You would say poorer countries get to grow faster. Richer countries get to grow more slowly. Of relevance to corporate profit, growth is of relevance to investors and so on. Certainly, it’s a reason why emerging market investments are structurally attractive for investment portfolios.

But do note, there's a lot of variation here. And so, for instance, we can say in looking on the left side here, you see, we've made different colored circles.

You can say, okay, you've got kind of the super countries in the top left corner. They are low income and really high growth. And so we're talking here about India and Vietnam and Bangladesh, the Philippines, Indonesia. China is in there too, Ukraine interestingly as well. There might be some optimism about rebuilding postwar there.

Nevertheless, there’s a series of countries that are really in a position to grow wonderfully, probably quite attractive economically over the coming years.

You then have a light blue cluster of countries, sort of in the middle on the left. And so these would be growing at a pretty good rate, but broadly fulfilling the promise of poorer countries getting to grow a bit faster than richer countries – but not blowing off the top here.

That would include Argentina, Ethiopia, Thailand, Pakistan, Peru, Mexico and so on.

And then lastly, you have countries in the bottom left quadrant, and these are the unfortunate ones that are low income, low growth. So they are poor. You would think they would be capable of fast growth, but for various reasons they are not.

South Africa's in that mix. Iran is in that mix. Depending how you define it, sometimes Mexico is in that group, sometimes they're not. But the bottom line is they are seemingly much more challenged.

You then have middle to high income countries, middle to high growth countries, looking pretty good. That would include the Turkey's, and Romania's and Kazakhstan and Poland and these sorts of countries, again broadly fulfilling the promise of moving pretty quickly.

They're not as wealthy as advanced economies.

And then lastly, of course, you have just the high income, low growth countries. This is most of the developed world. There are some exceptions: Taiwan is moving faster, Korea moving a bit faster, and so on. But on average they’re not set to grow as quickly, but already fairly prosperous.

And so not to suggest that fast economic growth equal superior market returns not always.

And there are extractive economies where the investors don't get the fruits of the economies gains. Markets, of course, can price in some of the fast growth. And so it certainly does vary to some extent, but equally, for long-term investors, it’s useful to think about these sorts of things in terms of where profit growth might most readily come from.

00:33:30:01 - 00:33:47:18

Okay. I'll stop there. As always, if you found this sort of thing interesting and useful, please do consider following along on our own website, rbcgam.com/insights, or certainly on LinkedIn. We're regular publishers of content there as well.

I'll just say again, thank you so much for your time and I wish you well with your investing. Please consider tuning in again next month.