Hello and welcome. My name is Eric Lascelles. I'm the Chief Economist and Head of Investment Strategy Research for RBC Global Asset Management, and very pleased to share with you our latest monthly Economic Webcast for the month of October. And as you can see in front of you, the title is Rising diesel costs and rising yields. Neither of those are entirely welcome developments.

So there are some very real challenges that we're grappling with right now. I should admit, maybe not quite worthy of headline attention, but on the more positive side of the ledger, we are still seeing some pretty impressive AI advances. And so that merits some discussion a little later on. And similarly, corporate earnings continue to surge.

And so broadly, the environment may be not quite as challenging as this title suggests, but there are some new issues. And we're going to talk about these, among other things, over the span of this webcast.

Okay. Let's jump our way right in.

Report card: And as we always do, we'll start with a report card. And indeed, let's start on the positive side of the ledger.

And so yes, there are still some pretty good things going on out there. And I do want to maybe level set by emphasizing that the global economy is still looking pretty good – indeed, proving fairly resilient. In terms of our forecasts, we still have mostly above consensus growth forecasts, both for 2026 and for 2027. We think there's room for the economy to keep growing and maybe even to pleasantly surprise.

Part of that, of course, is an artificial intelligence story. And so we see AI technologies just advancing quickly. I'm going to talk a little bit later about consumer AI agents that are perhaps the latest and greatest such application. And we are still budgeting for a period of faster-than-normal productivity growth. In fact, it's maybe fair to say, a sustained period or even an era, to maybe put a bit too exciting of a word to it.

But we think that we are shifting from a low productivity growth regime to a high productivity growth regime. And that's really important. That can go a long way towards offsetting other challenges out there in the world.

I will say in an energy context – qnd we're going to talk about the bad parts of the energy story in a moment – much revolves, of course, around the Middle East.

But the Saudi oil pipeline had been interrupted not that long ago, and that was quite concerning. And they've managed to get that operational again. It's running at about half its theoretical capacity. So a glass half-empty perspective would still be to focus on the fact that things aren't as good as they were perhaps a month ago.

Nevertheless, bringing that crucial pipeline back on is one of the reasons that the price of oil is now $100 or below, as opposed to surging past that.

I do want to mention a Canadian item as well, which is Canada just announced some pretty important developments, with a major corporate tax cut.

It’s quite large, bigger than you might think if you just saw the headlines. And some further deregulation. And so, business supportive, and we would argue probably economic growth supportive over a multi-year period. So, a positive step for Canada there.

In terms of the negatives. Well, let's circle around to the price of oil and the Strait of Hormuz specifically.

So that is still significantly dropped. The essential backdrop of this war between the U.S. and Iran continues. It is now over six months long and that is still very problematic. And indeed, one of the bigger risks out there is just that this blockade continues. And, the pinch point gets ever more problematic, as I'll discuss in a moment.

Inflation accordingly is still too high. It's not like it was in 2022. It's not 8, 9, 10%. But, it is still in the realm of 3% in a number of markets. And so that's still too high. And of course, that has forced some action from central banks as well.

Bond yields are on the move right now.

I'll talk about why a little bit later. But part of the story is inflation, as just articulated. Part is that central banks are raising rates. Part is just I think the bond market is sort of revisiting the entire set of assumptions it's been making and deciding that higher yields are necessary. And so there's been a big move there.

And, with some concern in the economy as to how well the economy can handle that. More on that in a moment.

Also, stock markets have been choppy. Indeed, we're back to a mode in which artificial intelligence hyperscaler companies are outperforming, whereas you're not seeing much performance elsewhere in the market. That really has oscillated back and forth.

There have been periods of time in the last year when it was all the companies, except for those tech companies, that were performing. A constant has been something has been performing at all times. And so you look at the broader stock market and it holds together. But right now it's back to tech leadership, you might say.

And then for all of the bragging I just did about a new tax cut and more growth friendly regulations in Canada, of course, here we are still dealing with that U.S.-Canada trade war and tariffs continuing. And indeed, as had previously been announced, but recently implemented, the U.S. has added some slight additional tariffs to Canadian exports.

And then in the interesting file, what can we say here? Well, I mentioned this already but the Fed (Federal Reserve), the U.S. central bank, has delivered its first rate hike. I don't want to call that negative in the sense that it's probably an appropriate action. And so it slows growth, but maybe in a in a necessary way to control inflation.

Hence interesting. The U.S. and China have had a summit. I would summarize that as not a lot happened and they did delay the expiry of certain small trade accords that had previously existed, but nothing, nothing really big other than a commitment to meet again. And so nothing much there.

The U.S. midterms are approaching rapidly. They are just over a month away.

I'll check in on that in a moment as well.

And then with a great fanfare, there has been discussion about Canada having some sort of associate membership in the European Union (EU). I think symbolically that's very nice. And of course, at a time that the U.S. is turning away from Canada, it’s perhaps not the worst sort of thing to engage in.

However, do note that Canada already has a full free trade deal with the European Union. So that part is already operational. As much as we are very likely to see additional military partnership, maybe there'll be some scope for students to more easily study in their respective institutions and this sort of thing. I wouldn't think there'll be free movement of people or anything quite as extraordinary as that.

Maybe the key observation is the European Union already has many partners at different levels of integration, and those partners are, for those kind of privileges, obliged to pay directly and quite substantially into the EU budget and that kind of thing. So we're unlikely to get just gifts handed to Canada without that same sort of contribution. So I would say, symbolically nice.

It probably doesn't change the story too, too radically.

And one other Canada thought, and that would be that Canada's population growth has absolutely decelerated profoundly in recent years, as many of the temporary workers have returned to their original countries. However, the initial estimates that the population was shrinking seem not to have been correct.

They've been revised. It's now slow population growth instead of decline.

Okay. Well, I think I've just stolen my thunder for all the charts I'm about to share with you, but let's do that anyways and speak at a bit more length about some of these themes.

Corners of the energy market are in acute pain: And so, we'll start just with energy prices. And so I'm showing in front of you the price of U.S diesel retail costs.

And so I guess the observation here is, first of all, the cost of diesel is very high. Maybe more importantly, though, higher than it was in the spring. And so if you were to look just at the price of oil or even the price of gasoline, you would find the spring was likely the peak. And yet here we are with diesel even higher.

And it speaks to this broader theme in which a number of distillates and refined products are suffering worse than the oil price itself. And so this is certainly the case. The cost of diesel is very central to the cost of transportation. And so the basic thesis here is that we are still probably going to see some inflation trickle through via higher transportation costs, unfortunately.

And, you know, the U.S. is sufficiently concerned about this. There has been some speculation about a diesel export ban and that sort of thing. I would put a pretty low probability on that right now, but, nevertheless, something worth watching. And speaking to the fact that as much as oil prices are sort of hovering semi steadily just under $100 a barrel, as per West Texas Intermediate, not everything is totally stable beneath the surface.

It is getting a little bit more challenging. And indeed, I guess speaking of those challenges, let's take a look at this metric of supply chain pressure.

Some supply chain pressures forming: And so you can see it's up. It's down. Indeed, maybe an optimist would say it's down slightly recently but trending higher, trending higher. That’s reflecting the fact that a lot of ships are stuck in the Strait of Hormuz, or more precisely the Persian Gulf, and the Red Sea is becoming more difficult to transit.

And so ships are having to go around the Horn of Africa and it just takes more time, it takes more ships to do the same work. Panama Canal with low water levels is also not transiting totally normally. So we are seeing supply chain pressures a little higher than normal. We do not expect them to become as problematic as they were a few years ago.

Okay. Central banks.

Shifting from an easing to a tightening cycle: So central banks, as we've been flagging for quite some time – no shocker here – have been shifting from a period of rate cutting, as that blue valley would show towards the right side of your screen, to a period of rate hiking or tightening. And so now we are in a position where more central banks are raising rates than cutting rates.

It makes sense. Economic growth has been pretty good. Inflation is too high. That recipe does argue for some amount of rate hiking. And so you've seen the European Central Bank raise rates prominently. The Federal Reserve is now. The bank of Japan has, and a number of others – the Reserve Bank of Australia, the Danish central bank – a number of central banks are now in tightening mode.

Canada is not there yet. The market is still debating this. There is an October rate decision. The market is pricing right about a 50% chance of that right now. My slight bias, really, without any kind of complete conviction is that perhaps they won't raise rates. It's just a thought that with new tariffs and those sorts of threats, that maybe you wait and see how much damage is done there.

Nevertheless, it wouldn't surprise us to see some tightening happening over the coming months in Canada as well. But let's focus in on the U.S. for a moment.

Fed rate hiking cycle begins: So here is the U.S. fed funds rate. And so you can see a few things here. One is that, until relatively recently, it was a rate cutting cycle.

These policy rates were falling. You can see in September, mid-September, a rate hike, the first little move higher. Certainly there tends to be persistence in these kinds of actions. You don't tend to see a hike and then a cut and then a hike and then a cut. It tends to be cut, cut, cut and hike, hike, hike.

And so, even just mechanically, the best bet would be that there's some more hiking to do. I would say that the market's pricing in quite a bit over the next year, in the realm of about 100 basis points. We might take the under on that, just to the extent that the one important distinction here is the starting point, right?

So this is not 2020 or 2021, when the fed funds rate is starting at zero and has a long way to rise. It started, I suppose, in the mid threes. And so arguably there’s a little bit less work to be done.

Still, it does make sense to raise rates. That U.S. inflation print is still chronically in the 3% plus range.

The economy has done actually quite well for the U.S. And so this is a pretty good argument for some rate hiking and so indeed, that is what we are seeing.

Bond yields have leaped higher: That brings us then to bond yields. This is the U.S. 10-year yield – just a sort of a bellwether bond really for the world, you might say.

And so you can see quite visibly since 2020 a whole lot of rising of that yield. A lot of that was just sort of coming out of the pandemic and as inflation briefly spiked, but we never saw yields go back down after that. And here we are now with yields rising again, as the rightmost arrow shows. And so again in a yield environment, that is about the highest we've seen in approximately 20 years.

So quite a period of time. You know, the 2010s were unusual. It was a very depressed period of interest rates. You had quantitative easing. Central banks were buying bonds, trying to hold those yields down. So that was pretty special. And so maybe you shouldn't think that we could have stayed there for any long period of time. But still, you know, in the realm of the highest in 20 years, we're having to grapple with this.

In terms of why it's happening, well, I think there are a number of factors.

One would be just fiscal positions are not very good. And that's particularly true in the U.S., but it's true to a lesser extent in much of Europe and quite a range of other countries. Just big deficits, big public debt loads, not a lot of appetite to engage in consolidation or an austerity.

As a result, your bond market is demanding a premium for that. And even just you could say in a more supply-demand context, there's more supply with all these deficits. And so you need to go find some more buyers. And those more buyers need to be induced with a higher interest rate. So that is what they are getting.

Part of the story is, as mentioned ad nauseum at this point, inflation's too high. So some of that's been priced into bond yields as well. Some of it is just that there's a thought process that maybe a normal interest rate is higher in an era in which maybe productivity growth is faster. You can afford a higher hurdle rate for investment decisions, which is what an interest rate is – if the economy can sustain a faster rate as well.

So that's part of the equation also. Looking at this a bit more closely, the question then is, well, what are the consequences of this? And honestly, if you were to take this at face value – and I think we need to be careful about this – but if you took it at face value, you would say even just the movement of the last month, the U.S. 10-year yield is up half a percentage point roughly in the last month, which is pretty incredible.

By itself, that move is the equivalent you might say of five rate hikes like that. That is the approximate magnitude of increase you would normally expect in the 10-year yield after five rate hikes. And so you sort of map that on to what does that mean for the economy as per various models. And it would say chop up to two percentage points off the economic growth outlook, which is a lot.

So if you want to be nervous you would say, boy, this is really going to take a lot off growth and isn't all that great. And I think it does take something off growth. And it's not a perfect situation to be in.

But do be aware. Maybe there are some special factors here. So one would be a broader assessment of financial conditions.

It would say listen, things overall aren't too bad. So government yields are up quite a bit. But credit spreads are still quite narrow. The stock market until recently has been soaring. And so there's lots of wealth still sloshing around. And so when we look at a broader financial conditions index, it says, yeah, it's gotten a little worse in the last couple of months, but it's still not bad.

So we're not overly distressed at this point. And I should say we're not convinced yields go a lot further upwards from here. We think, in fact, if anything, this maybe constitutes not a bad sort of buying opportunity, with no guarantees. But not a bad level of yields, given it's the highest we've seen in about 20 years.

Another more constructive interpretation – and this is specifically relevant to the U.S. – is that, you know, the U.S. economy often is booming because of housing. And then you say, oh-oh, higher rates are going to kill that boom. Yet housing is not the central driver of the U.S. economy right now, or the Canadian economy, or a lot of economies.

It is much sleepier. And so therefore rising rates don't have as problematic an effect on growth, one might say. In fact, if you look at one of the things that is driving specifically the U.S. economy, it's this artificial intelligence CapEx boom. That's not very rate sensitive at all. That can continue even in a higher rate environment.

So that doesn't hurt as much, if we're talking the U.S. specifically. As a general rule of thumb, the U.S. feels falling rates quickly. It feels rising rates more slowly. And so therefore the pain from this is maybe, somewhat slower to be felt. And so not an immediate impact as well.

And then, as I mentioned earlier, a part of the reason that bond yields are rising, in part, is for not good reasons: inflation fears, fiscal concerns. Part, though, is just because the economy is looking pretty good, and people are starting to revise higher what they think productivity growth can be and those sorts of things and those are benign reasons or even good reasons for higher interest rates.

And so they don't necessarily do that much damage. So I've given you sort of the classic two-handed economist routine here. I would say, overall, rising yields do prompt us to wonder if growth could be a little bit weaker than otherwise. That is the correct conclusion.

But maybe not as profoundly as you would think, if you just looked at a chart like this and said, wow, the 10-year yield was under 1% and now it's over 5%. That sounds like trouble. We're not convinced that's a big problem. It does slow things down a little bit, however.

Okay, onward from there.

But remarkable earnings growth continues: In fact, speaking of ‘however,’ or I guess I put the word ‘but’ in here in terms of the slide title, for all of those challenges – and so diesel is high and oil is high and yields are rising – we're still seeing a pretty good economy and we're still seeing very good earnings growth.

So this is U.S. S&P 500 earnings growth.

Each of those colored lines is a different year's forecast, just to explain that. And so for instance here we are in 2026. That's the light blue line. And so first of all that light blue line has been rising. So earnings expectations for 2026 just keep going up and up and up. That's not normal, actually. Normally you see them descend over the span of a year.

Just as important, more important even, the light blue line, the end point is way higher than the line below it. And so that means earnings growth has been truly exceptional in 2026. And you can't see it here, but I can tell you much is a lot of it is artificial intelligence companies, it's not all that. We're seeing good earnings growth in a pretty broad sense.

And even excluding essentially the tech sector, you're still seeing 10%-type earnings growth. So quite impressive.

And then as we look to the future, which is of course all important for forward-looking markets, the dark blue line is the 2027 forecast expectations. They're also rising. The expected level of earnings is also a lot higher than 2026. Similar story for 2028, though it is getting a little bit hazy and tentative at that sort of time frame.

And so the point being is that the earnings story is still quite good. Earnings growth is still expected to be quite good. And so the overall environment is proving remarkably resilient in the face of an energy shock and what you might even start to call an interest rate shock as well.

Okay. On to some other thematic topics.

Midterms ahead – Republican sweep to end: So the U.S. midterms are just over a month away. These are just probability markets, not my prediction in particular. On the left you can see it's looking pretty comfortable to say that the Democrats will probably pick up the House of Representatives. Currently the Republicans have it. So that is a flip. As a result, Republicans are likely no longer to have a stranglehold on all forms of federal government.

They'll still have the presidency. They may not have, they probably won't have the House of Representatives. Then the chart on the right is fascinating. That's the Senate. And so this one has sort of swung back and forth over and over. And in the early phase of the war with Iran, it looked like the Democrats might pick it up.

It flipped back to Republicans for most of the summer. It's now flipping back, perhaps as rates rise and cost of living becomes a bigger concern and gas prices are still high. It’s flipping back to the Democrats. That's the blue line. And so it could well be that the Democrats pick up both the Senate and the House.

We'd say, the Senate with less conviction than the House, but very likely the Republican sweep is to end.

And in terms of consequences, well, maybe less than you would think. So as an example, tariff decisions are primarily a function of the White House. That's still Republican. We can say that military decisions are primarily function of the president. That doesn't change.

And so some of the big things going on right now likely loosely continue. However, there will be more budgetary oversight and certainly more political oversight, you might say, as well. And we would think the scope for more tax cuts in the U.S. is diminished, the scope for more deregulation somewhat diminished, though a lot can be done outside of legislation there.

And so we've generally been arguing that just purely in a very narrow economic sense, it’s maybe slightly economically negative, because you're less likely to see, again, tax cuts and fiscal stimulus and so on. Equally, you could argue that's fiscally positive because it means that maybe deficits aren't quite as big or aren't growing further or something like that.

And so maybe bond yields get to be a hair lower. It’s maybe one of the things that could ultimately cap this increase in bond yields. But certainly it’s worth watching very closely, we think.

Okay. Again, so many things you could say about AI, and you've heard from us in past webcasts, I suspect. Let's talk about just the latest AI iteration. I do want to emphasize iteration.

The next AI iteration: consumer agents: So we've had these large language models around for a while doing pretty remarkable things. You might be engaging with them or perhaps not. The next iteration, though, is arguably these consumer agents that are just much more friendly to users. It’s no longer just about researching, not just a better Google.

Also, AI is knowing all about you a lot, which maybe is a frightening thought, and acting on your behalf, which is perhaps a more attractive thought.

And so examples of these consumer agents would include they can administer your email for you and send emails for you and alert you when important emails come in and handle your calendar. They can book an appointment with your doctor and this sort of thing. In theory, they can go shopping for you and even pull the trigger on the purchase if you're so inclined.

They can negotiate a phone bill. They can book an event or a trip or just do recurring delegated work. And so it's kind of the next generation of AI models, the basic same technology, but sort of with your passwords, if you want to put it that way, and able to act on your behalf.

So we've been thinking through this as a portfolio manager and as investors. Who does this help? Well, you know, it helps consumers potentially save money. It is easier to price shop, to get a better product, to save time, to organize your life better. That's attractive certainly to households. There are some tech companies set to win, the ones making these agents, obviously.

They're set to win as well. It's especially positive for companies that can know a lot about you, because they can be the most helpful to you, whether that's a Meta or a Google or someone else. It's those sorts of companies that probably already have a lot of information, for better or worse, about you. And some businesses will thrive because they are producing genuinely a superior product and doing it at a lower cost.

And so AI will perhaps direct you towards those as opposed to the inertia -- where you were just buying whatever you were familiar with before. In an economic sense, we would say this kind of technology is potentially deflationary. So that's saving you money. That's slightly lower inflation, maybe slightly lower rates. I should emphasize this is sort of a multi-year story.

And it’s at the margin, not the dominant driver. But who does it hurt? Well, you know, retailers potentially. The value of a brand name perhaps diminishes if people are able to or computers are able to better evaluate the relative quality and price of different products. And so maybe margins shrink, as a danger to that sector.

And again, from an investment lens, in telecom, insurance, perhaps travel, maybe financial services more generally, it reduces friction or consumer inertia, improves consumer bargaining skills to the extent you got to bargain for your phone bill or for your insurance or something like that. And so maybe those companies make less money. The stock market's been reflecting some concerns to that effect recently.

We would posit that as much as this is maybe a net positive, a lot of the net positive accrues to the user, to the consumer, which is great. And a little bit accrues to the tech companies building it.

But maybe it's stock market negative on the whole or business sector negative on the whole because a lot of other sectors get somewhat disrupted.

Now, I don't want to overstate this, because this is not the first time that the average household has been given more information and is able to be more discerning and so on. It was a very similar narrative when the internet came along and you could price shop online, and there are websites that do this and so on.

And so this is just again the next step along that path as opposed to a brand new concept. But it could be significant. So we will see. And we are watching very closely indeed.

Big tech leading again, other stocks lagging: And related to that, here is me putting on my market strategist hat for a moment, with a number of wiggling lines in front of you for comparisons.

So, for instance, the light blue line shows that over the last couple of years – but maybe more relevantly over the last few months – if you look on the far right side of the light blue line, the Magnificent Seven, the hyperscalers, the big U.S. tech companies have been outperforming the broader index. And so, again, they're the ones, loosely speaking, that are introducing these new consumer agents.

People think they're going to do well with that. So that's been outperforming. You can see some lines swooping downwards below that. For instance, the dark blue line is essentially small cap stocks underperforming the big cap stocks. And so further to the big companies might do well here. Might be in a better position to handle this change.

I can say the gray or beige. I'll let you decide that color line. It’s hooking downwards as a reflection of, again, kind of big companies doing better than smaller companies as reflected by an equal weighted index. And similarly in orange, you can see value stocks not doing quite as well as growth stocks.

And guess where tech companies tend to be? So this has been a period of tech company outperformance. As I mentioned loosely earlier, we've had different periods over the last year, and there have been periods where it's actually a very broad market gain, and periods where it's been the tech market performing. Right now, it's the tech market performing again. That probably isn't a forever story, but that's where we are right now.

We do take some solace in the fact that it seems like, regardless of what the theme is, it's more money being reallocated between the tech sector and other sectors. It's not really money coming out of the market or into the market. And so it has provided some stability and some support, I suppose you could say.

And so the stock market has been holding up and I would again draw your attention back to that earlier chart showing that we're seeing some pretty remarkable earnings growth here.

And the earnings growth revisions have been so strong that stock market valuations are falling in a way that would suggest stocks are, if you believe the earnings forecasts, should be less challenged at these levels than they were before. There's reason to be a little bit more comfortable in the stock market right now even than a few months ago, based on the evidence that we have right now.

But the tech sector is leading.

Okay. And then just to kind of broaden out the AI conversation, that tends to be very significantly about the U.S., which is correct. That's where a lot of the capital expenditures are happening. That's where a lot of the biggest, most prominent companies are based. But I think it is worth flagging that it is not just a U.S. story.

China also benefits from AI boom: China is, you know, nipping at the heels of the U.S., and even abstracting away from the models. Not shown here, but China has a lot of open models that are fast followers and sort of copycat type models. The U.S. has more frontier models, but both are performing well. China is also increasingly doing very well, you might say, in the hardware export business, which is linked to this tech boom.

And so it's export, as you can see in blue, dark blue I should say, of computers and parts is rising nicely. Computer chip exports in gold are exploding higher. Keep in mind China does not have access to or have the ability to produce the true bleeding-edge computer chips. But it's getting better and better.

And clearly there's some demand for that, as you can see here. And then power equipment as well. Of course, a lot of electricity is needed to make all of this and the data centres happen. And so, again, China thriving on the back of that, and we would still flag China is set to do more generally, potentially very well in this AI boom.

As I've shown you, they are exporting increasing amounts of AI hardware. As I just mentioned, their fast following open models are pretty good and very cheap and so quite attractive, I would think, for many uses going forward. China has a lot of inexpensive electricity. This is a big, big advantage. China has that. The U.S. does not have it.

And then here we are now with some pretty serious concerns about runaway AI or whether AI could become really negative in terms of taking over the world, or maybe something less exotic than that, but something negative. And so talk about putting guardrails in place. And as much as the U.S. isn't all that seriously considering that, it's more likely, I think, to put guardrails in place. China could just let this run.

And, it makes me nervous a little bit. But nevertheless it does put China in a pretty good position, to be a leading player in this space, essentially.

Germany loses car exports, but gaining AI + defence: And I want to throw Germany in the mix, too. And so do we know why there aren't big prominent German AI models? But there's been a lot of talk about Germany really losing its auto sector, or at least that sector being in decline.

And that's correct. So the gold line is declining, auto exports in, you know, seemingly, almost terminal decline. China, by the way, is eating everyone's lunch around the world on that front with now the biggest auto sector and the biggest auto exports. But what's interesting is Germany has another industry that is maybe not fully offsetting the auto sector decline, but that is rising significantly and maybe almost offsetting it.

And that would be similar to those Chinese export numbers I showed you, German exports of data processing devices, electronics, optical devices significantly rising and again, of a magnitude that is almost offsetting its decline in the auto sector. So don't think this is just a U.S. and China story either, I suppose is the point.

Canadian population growth dimmed, but didn’t substantially decline – rebound ahead: And then a couple thoughts on Canada, just to close things off. I mentioned before, Canada's population has slowed, growth has slowed quite significantly. However, prior estimates that it was declining have proven incorrect. So the government just came out with revisions here. The population, setting aside one little quarter, has not actually been in decline.

And so this seems to be the government revisiting the assumptions it makes around temporary visa holders as their status changes. And so, still a period of time when you would think, top line economic growth would be slower than normal in Canada, just you're not getting the growing population that is so significantly a part of that.

But it's not as bad as first thought. As a result, maybe the sustainable growth rate’s a little bit quicker than previously thought. Equally and kind of less happily, we had been talking about how Canada's productivity growth was starting to revive. That looks less good now because, as it turns out, the output was not spread across a shrinking population.

It was spread across a growing population. And so just mechanically, the productivity growth isn't quite as good.

 Where do we go from here? Well, we should start to see population growth actually pick up somewhat over the next few years. In 2027, we should see a notable acceleration and 2028 should be an acceleration again. I think it's a number of years until we're fully back to a normal rate of population growth.

And by that I mean a pre-pandemic type of growth rate. Nevertheless, we start to see that pick up to some extent. And again, that is alongside productivity growth that is a key driver of economic growth for any country.

And then nearing the finish line here, let's talk about Canadian policy.

New accelerated depreciation measures improve Canada’s tax competitiveness: This bar chart shows you the marginal effective tax rate on capital for each country. That's a mouthful. I will just explain that, as we can talk about the corporate income tax rate and that's relevant, certainly. But the actual taxes a company faces are more than just the tax rate on its income. There are equally important questions.

Do they get to do depreciation or accelerated depreciation of their capital investment in a way that functionally lowers their tax rate? Do they get a research and development tax credit? How does that look? Are they paying a sales tax on their inputs or not?

And so really it's this wide range of taxes that together collectively inform what the tax rate and maybe the relative tax advantages of different markets actually are.

And if you do this properly, you end up actually with the conclusion that Canada looks pretty good. So, if you look at this bar chart, Canada is on the left. The higher number there was Canada's marginal effective tax rate on capital before recent changes. Canada just announced essentially that far more CapEx can be depreciated quickly.

It used to be 15% of what businesses invested in could be depreciated immediately. Now it's two thirds. So a big increase in what's eligible. And so effectively this marginal effective tax rate has fallen by more than half. If you believe this chart, it is now the most favorable corporate tax rate by a wide margin in the G7 – and notably more attractive than the U.S.

There's reason to think this math is a little bit generous. It's including a few sectors that flatter Canada. The OECD has done some numbers – this chart is from the government of Canada – that aren't quite as favorable, but it's still pretty good. And it still improved quite significantly. And we would say this is a big leg up and significant in Canada's efforts to attract more foreign capital and to encourage more Canadian businesses to invest in capital as well.

So it is still significant. There are other important considerations in terms of whether the Canadian business sector really gets rolling and the regulatory burden has been a source of complaints as well. That's been improving as well, though, incrementally over the last few years.

You remember last year they had special projects that were going to get this fast-track status that would let them be approved more quickly.

This year, quite recently, the announcement has been that essentially, for all projects that are proposed, they're going to try and review them within a year, which is much faster than the norm and only have one level of review, as opposed to many competing overlapping systems of review which previously have bogged things down.

And so we would say, we think the business sector environment in Canada has gotten a lot better.

Now the onus is on Canadian businesses and I guess international investors as well to actually get going here. And so we're going to be watching very closely over the next few years. We do think that the tariff uncertainty right now could bog things down a little bit in the near term. But we are increasingly more optimistic about Canada over a longer period of time.

And that's it for me, folks. And so thanks for sticking with me. I hope you found something useful or interesting in this presentation. I wish you very well with your investing and please consider tuning in again next time.