1. 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) 974-6192 robert.hogue@rbc.comrobert.hogue@rbc.com

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

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

9. 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)

10. 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

11. 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

12. 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

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

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

15. 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?

16. RBC ECONOMICS I RESEARCH 16 Disclaimer The material contained in this report is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authorization of the copyright holder in writing. The statements and statistics contained herein have been prepared by RBC Economics Research based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This publication is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities. ®Registered trademark of Royal Bank of Canada. ©Royal Bank of Canada.