1. Moving forward in an uncertain world The economic outlook for Canada and Newfoundland and Labrador RBC ECONOMICS I RESEARCH Robert Hogue Senior Economist robert.hogue@rbc.com Professional Engineers and Geoscientists Newfoundland and Labrador Gander June 8, 2012

2. ECONOMICS I RESEARCH 2 Economic indicators point to slow growth, not to an absolute decline Another global recession is not upon us

3. ECONOMICS I RESEARCH 3 IMF projects 3.5% in 2012 vs. 3.7% average since 2000 Close to average global growth to continue this year

4. ECONOMICS I RESEARCH 4 Contrast persists: emerging (≈6%) vs. advanced (1-2%) economies China and other fast-growing economies carry the load

5. ECONOMICS I RESEARCH 5 Driven by faster-growing China et al. and recovering U.S. economy Global demand for natural resources still generally solid…

6. ECONOMICS I RESEARCH 6 With some exceptions, commodity prices are likely to stay elevated … and will keep commodity prices at profitable levels

7. ECONOMICS I RESEARCH 7 Yet, economy still quite vulnerable to negative shocks U.S. growth on an gradually accelerating path

8. ECONOMICS I RESEARCH 8 The Fed expected to leave its rate unchanged until 2014 U.S. monetary policy extremely stimulative

9. ECONOMICS I RESEARCH 9 We assume that some of the tax cuts set to expire will be prolonged U.S. outlook contingent on the extension of fiscal measures…

10. ECONOMICS I RESEARCH 10 Weather muddied the employment picture so far this year …and stronger job creation

11. ECONOMICS I RESEARCH 11 Financing is becoming increasingly available The U.S. credit mechanism is functioning better

12. ECONOMICS I RESEARCH 12 Significant motor vehicle replacement cycle at play U.S. consumers will bring it up a (small) notch

13. ECONOMICS I RESEARCH 13 Facing intense competition and striving to enhance productivity U.S. businesses will boost their capital investment

14. ECONOMICS I RESEARCH 14 Slower-than-expected start to the year but pace will improve Growth in Canada in 2012 will be little changed from 2011…

15. ECONOMICS I RESEARCH 15 The biggest difference will be a turnaround in external trade …but its composition will differ

16. ECONOMICS I RESEARCH 16 Pick-up in E&S investment, industrial production, auto sector will be key External trade will benefit from stronger U.S. demand

17. ECONOMICS I RESEARCH 17 This provides a huge lift to incomes in our country Canada enjoys favourable terms of trade…

18. ECONOMICS I RESEARCH 18 Although Canadians will show more restraint than pre-recession …and this lends continued support to consumers…

19. ECONOMICS I RESEARCH 19 At the very least, accumulation of debt will slow …although heavy debt loads will beg increased prudence

20. ECONOMICS I RESEARCH 20 No crash in view, however Canada’s housing market will show some moderation

21. ECONOMICS I RESEARCH 21 Spending boom in the resource sector Business investment still a key driver of activity

22. ECONOMICS I RESEARCH 22 Stimulus is over; now comes the drag from the Action Plan Fiscal policy will be restrictive as governments fight deficits

23. ECONOMICS I RESEARCH 23 We expect the output gap to close early next year Bank of Canada will start raising rate late this year…

24. ECONOMICS I RESEARCH 24 BoC’s move will precede the Fed by more than a year …pressuring short-term spreads with U.S. rates upwards…

25. ECONOMICS I RESEARCH 25 Substantial near-term volatility as investor risk appetite fluctuates …and eventually the C$ higher

26. ECONOMICS I RESEARCH 26 Newfoundland and Labrador ‘reloading’ this year Western Provinces benefiting from the commodities boom

27. ECONOMICS I RESEARCH 27 Outpaced the national average in the past two years Newfoundland and Labrador economy in growth mode

28. ECONOMICS I RESEARCH 28 Mining and oil and gas extraction accounts for half of provincial GDP Performance heavily depends on resource production

29. ECONOMICS I RESEARCH 29 Maintenance shutdowns at Terra Nova and White Rose Lower offshore oil production to slow things down this year…

30. ECONOMICS I RESEARCH 30 Strong increase in iron ore output …but mineral production will kick into higher gear

31. ECONOMICS I RESEARCH 31 Will support consumer spending and housing Employment is on an upswing in the province

32. ECONOMICS I RESEARCH 32 Record spending projected this year Capital investment a catalyst of activity in N&L

33. ECONOMICS I RESEARCH 33 Better economic prospects should retain and attract workers Demographic situation on an improving trend

34. ECONOMICS I RESEARCH 34 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.