economic update & outlook

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October 12, 2021

Economic Update & Outlook

2October 12, 2021

Today’s Presenter

3October 12, 2021

Questions

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Note, this webinar is being recorded, and the presentation will be made available on our virtual advice event landing page.

The long and winding road to recovery

Dawn DesjardinsVP & Deputy Chief Economist

(416) [email protected]

October 2021

US economy on recovery path amidst elevated uncertainty

-4

-3

-2

-1

0

1

2

3

4

5

6

7

2008 2010 2012 2014 2016 2018 2020 2022

Real GDP growth: U.S.

Annual Growth Rates

Real GDP2022f3.6

20192.3

2020-3.4

2021f5.6

Year to Year % change

Source: Bureau of Economic Analysis, RBC Economics

Canada challenged by Delta variant though unlikely to throw economy off course

-6

-4

-2

0

2

4

6

2008 2010 2012 2014 2016 2018 2020 2022

Real GDP growth: Canada

Annual Growth Rates

Real GDP2022f

4.320191.9

2020F-5.3

2021f5.1

Year to Year % change

Source: Statistics Canada, RBC Economics

High vaccination rate will limit pressure on health care and reduce need for restrictions

0

10

20

30

40

50

60

70

80

50

100

150

200

250

Hospitalized New cases Vaccinated

COVID Cases vs HospitalizationsLeft axis: New cases and hospitalizations per millionRight axis: Vaccination rate (at least one dose)

Source: Our World in Data, RBC Economics

Labour market recovery underway but uneven

-180

-96

-73

-36

-26

-30

22

76

108

94

183

-200 -100 0 100 200 300

Accommodation and Food Services

Other Services

Construction

Business, Building & Other Support Services

Transport and Warehousing

Trade

Forestry, Fishing, Mining, Oil & Gas

Finance, Insurance, Real Estate

Public Administration

Educational Services

Professional, Scientific & Technical

Canada employment vs pre-pandemic levelThousands, change from Feb 2020 to September 2021


Fiscal support offsets lost wages

85

90

95

100

105

110

115

120

2019Q

4

2020Q

1

2020Q

2

2020Q

3

2020Q

4

2021Q

1

2021Q

2

2021Q

3

2021Q

4

2022Q

1

2022Q

2

2022Q

3

2022Q

4

Primary income (mostlywages & salaries)

Disposable income (includesgov't transfers)

Indexed to 2019Q4=100

Canada Primary vs Disposable Household Income

Source: Statistics Canada, RBC Economics Research

Forecast

Lots of money on the sidelines

50 100 150 200 250 300

Total consumer spend on clothing &footwear in 2019

Total consumer spend on food,beverage and accomodation services

in 2019

Total tourism spending in 2019

Household excess savings,accumulated through Q2/21

Billions of Canadian $

Household savings stockpile in context


RBC data shows consumers spending on goods and now services

-30

-20

-10

10

20

30

40

Jan-21 Jan-21 Mar-21 Apr-21 May-21 May-21 Jun-21 Jul-21 Aug-21

Goods

Services

% change from 2019 (pre-shock) levels, 7-day rolling average

Canadians shifting some spending to services as economy reopens

Source: RBC Economics, RBC Data & Analytics

Housing sales surged; slowing lately

543517

460 490

550

637

505

0

100

200

300

400

500

600

700

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

Source: Canadian Real Estate Association, RBC Economics

Thousands of units

Home resales: Canada

Forecast:

10-year average - 490K

Businesses are optimistic, planning to invest

-40

-30

-20

-10

0

10

20

30

40

50

2018-Q1 2018-Q3 2019-Q1 2019-Q3 2020-Q1 2020-Q3 2021-Q1

Canadian businesses plan to invest more in 2021

Source: Bank of Canada, RBC Economics

% balance of opinion of investment spending on machinery and equipment over the next 12 months

Labour shortages create challenges

3.7 3.84.1 4.2 4.2

4.54.8

5.05.2

5.86.0

0

1

2

3

4

5

6

7

MB NS NL SK AB NB ON Canada PE QC BC

Q4 2019 Jun-21

Job vacancy rate, in %

Businesses report elevated levels of unfilled positions


= 800,000 vacancies

Supply chain disruptions also limiting growth for now

0

20

40

60

80

100

120

Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21

Index = 100 in Feb/2020, SA

Chip shortages halting Canadian auto production recovery

Source: Automative News, RBC Economics

Shortages of inputs and labour lift business inflation expectations

0

20

40

60

80

100

Q1/19 Q2/19 Q3/19 Q4/19 Q1/20 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21

2% to 3% above 3%

Percentage of firms' responses to inflation expectation over the next 2 years

More businesses expect inflation to exceed BoC target

Source: Bank of Canada BOS survey, RBC Economics

0

20

40

60

80

100

Q1/19 Q2/19 Q3/19 Q4/19 Q1/20 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21

2% to 3% above 3%

Percentage of firms' responses to inflation expectation over the next 2 years

More businesses expect inflation to exceed BoC target

Source: Bank of Canada BOS survey, RBC Economics

Inflation pressures will ease albeit remain above BOC’s 2% target

-2.0

0.0

2.0

4.0

Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22

Other Food Energy MIC Headline CPI

Year over year growth in prices, non-seasonally adjusted

Energy prices to normalize; strong spending to put floor under inflation rate

Forecast


Rates will remain historically low

0%

1%

2%

3%

4%

5%

6%

7%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

BoC overnight rate

10 Year Bond Yield

end of period

Interest rates: Canada

Source: BoC, RBC Economics

Forecast

Canada’s dollar to trade ≈80¢US

0.60

0.70

0.80

0.90

1.00

1.10

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

Forecast

Parity

Canadian dollarUS$/C$

End of period

20210.80US$/C$

20190.77

20200.78

20220.79

Source: Bank of Canada, RBC Economics

Provinces moving at different speeds

-3.8-3.2 -3.0

-3.7

-5.3-4.8 -5.0 -5.3 -5.2

-8.2

-5.3

5.8

4.33.6

4.2

5.74.8 5.0 5.1

3.8

5.9

2.4

-10

-8

-6

-4

-2

0

2

4

6

8

B.C. N.S. P.E.I N.B. QUE. MAN. ONT. CA SASK. ALTA. N.& L.

2021

2020

2021 vs 2019


Real GDP, annual % change (2020 and 2021) and % change from 2019 to 2021

Half of provincial economies projected to recover fully in 2021

For more information please visit:rbc.com/economics

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http://www.rbc.com/economics

22October 12, 2021

Questions

• Please use the CHAT bar to submit your questions in writing during the live presentation.

• To register a question over the phone following the formal portion of our presentation:

o Enter 1 followed by 4 on your phone.

o If your question has already been asked, you can unregister your question by dialing 1 followed by 3.

Note, this webinar is being recorded, and the presentation will be made available on our virtual advice event landing page.

23RBC Bank Mortgage SolutionsOctober 12, 2021

Equal Housing Lender. Member FDIC.

® / ™ Registered trademarks of Royal Bank of Canada. Used under l icense.

RBC Bank means RBC Bank (Georgia), N.A., a subsidiary of Royal Bank of Canada.

Mortgages are subject to approv al, including v erification of acceptable income, credit worthiness and property v aluations. Minimum and maximum property v alues and maximum loan-to-v alue ratios apply. Homeowner’s insurance is required for all loans and lines of credit, and flood insurance is required if the property is located in a Special Flood Hazard area. Escrows may be required. There are closing costs associated with these products.

2. 3, 5, 7, or 10-year term refers to the period of time the interest rate is set at the beginning of the loan period which is 30 years (360 months); after the initial fixed rate term, the interest rate will adjust annually. Example: 3-Year Adjustable Rate Mortgage (ARM) calculation assumes a $250,000 loan amount, 4.000% interest rate, 4.764% APR, with 20% down payment, amortized ov er 360 months = $1,193.54 monthly payment. Example: 5-Year ARM calculation assumes a $250,000 loan amount, 4.125% interest rate, 4.679% APR, with 20% down payment, amortized ov er 360 months = $1,211.62 monthly payment. Example: 7-Year ARM calculation assumes a $250,000 loan amount, 4.375% interest rate, 4.699% APR, with 20% down payment, amortized ov er 360 months = $1,248.21 monthly payment. Example: 10-Year ARM calculation assumes a $250,000 loan amount, 4.500% interest rate, 4.455% APR, with 20% down payment, amortized ov er 360 months = $1,266.71 monthly payment. Rates and payments are subject to increase after initial fixed period of loan. If the down payment is less than 20%, mortgage insurance may be needed on the loan. This could increase the monthly payment and the interest rate. Rates subject to increase after consummation.

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