RBC ECONOMICS I RESEARCH Canada’s economic outlook: adjusting to the new realities Hotel Association of Canada March 1, 2016 Robert Hogue (Senior Economist) (416)

RBC ECONOMICS I RESEARCH 2 Oil prices likely to remain low during most of 2016 Gradual increase expected to begin later this year although this is subject to substantial uncertainty

RBC ECONOMICS I RESEARCH 3 US economy is a bright spot: it is essentially at full employment… Jobless rate below 5%, which is broadly consistent with full employment

RBC ECONOMICS I RESEARCH 4 …and expected to continue to grow at a respectable pace Several recent indicators have disappointed; this is likely to be a temporary soft patch

RBC ECONOMICS I RESEARCH 5 Federal Reserve has initiated the long-awaited interest rate liftoff Increased the fed funds rate for the first time in 10 years (to 0.50%); more hikes to come

RBC ECONOMICS I RESEARCH 6 Meanwhile, the Bank of Canada will remain on the sidelines Ongoing adjustments to the oil price shock will require accommodative monetary policy -1.25

RBC ECONOMICS I RESEARCH 7 Low oil prices and contrasting monetary policies to keep C$ weak We expect a gradual strengthening in the loonie later this year alongside the modest rise in oil prices

RBC ECONOMICS I RESEARCH 8 Energy downturn delivers a painful blow to oil-producing provinces… N&L, Alberta and Saskatchewan economies contracted in 2015

RBC ECONOMICS I RESEARCH 9 …with more pain to come in 2016 Oil-producing provinces likely to continue to struggle (although agriculture will help Saskatchewan)

RBC ECONOMICS I RESEARCH 10 Job losses are mounting in Alberta, and a turnaround is not yet in sight Alberta’s jobless rate just surpassed the national mark for the first time since 1988

RBC ECONOMICS I RESEARCH 11 Conditions are much stronger in major oil-consuming provinces Strong full-time employment gains recorded in Ontario, Quebec and BC

RBC ECONOMICS I RESEARCH 12 Canadian economy expected to steer clear of a recession ‘Phase I’ saw mostly the negative shock; we’re entering Phase II when more benefits will kick in

RBC ECONOMICS I RESEARCH 13 Favourable context for Canadian exports,… However, full benefits will accrue only progressively and become more sizable by 2017

RBC ECONOMICS I RESEARCH 14 …especially for tourism exports Travel services exports already showing positive response

RBC ECONOMICS I RESEARCH 15 Risks: what to watch out for Focus on downside risks but let’s not ignore upside risks  Oil prices: further weakness? Sharp rebound?  Fed policy: global impact of rising in US interest rates?  China: further slowdown/turbulence?  Europe: calm before another storm?  Canada’s housing market: hot markets boiling over?  Alberta: household balance sheets at risk?

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