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Hello everyone and welcome to Economic Impact. We are December 9th, 2025. First, I want to say a big thank you to my colleague Denis Girouard, who was the lead of this little video for more than two years. And I also want to thank him because he was, for more than 30 years, a strong pillar at National Bank. So, Denis, happy retirement and thank you for everything that you did. So, I'll take a minute to introduce myself. I am Nancy Paquet, Head of Wealth Management at National Bank, and I have the privilege of having this conversation with Stéfane Marion today. Stéfane is our Chief Economist as you know him. So, Stéfane, what can you tell us about 2025?

Well, I thought since you're here with me this morning, Nancy, that I would start, Wealth Management would start with the returns that we've seen across different asset classes so far. The year's not over Nancy.

Yeah, two weeks, but still, everything is positive.

Everything is positive, so everything is in the black, you'll be happy about that. And notice the performance of the Canadian stock market.

Wow.

Who would've guessed?

Who would've guessed in January when it was the first day of the American new presidency and we were so worried and not knowing really what was going to happen. This is amazing, but how can this happen?

Well, if you put some historical perspective on this 30%, it's, you know, we're looking and there's still possibility that we could chase, you know, beat the record that we saw in 2009, Nancy. But I think it's a reflection of resilience in equity markets. Yes, gold prices were up, but also banks did very well. But banks won't do well if the economy doesn't do well. And I think one of the most surprising factors, the stock market was surprising, but every stock market in the world finished a year in positive territory, but what was surprising is the performance of the economy where the unemployment rate, as of last Friday, the day that was published shows that the jobless rate in Canada is now lower in November than it was at the start of the year and we went through a very scary period here, over 7% and now back at 6.5%.

But hopefully this is the beginning of a trend and not just a statistic hiccup. So, do we know the quality of those jobs? Because that could have a major impact.

It's a good question. Maybe it was the people that just left the labour force. So, it's not a quality reading on the jobless rate. So let me reassure you, Nancy.

Oh, that's good.

More than 380,000 jobs so far in 2025, mostly full-time. That's great. Well-distributed private, public sector, mostly private this time around, which is good news and concentrated in industries that pay more than the average across industries. So, all in all, a good structure to support the economy.

Good. Looking forward to seeing the next graph next, in a month when we're going to do the next video because it would be amazing that it really is the beginning of a trend.

Yeah, well, be careful. It's super volatile. But I have to say the past three months have been surprising. So, even if we, finishing a year below 7% on the jobless rate was quite an accomplishment and with these types of full-time job creation, I think is supportive and brings us hope for 2026 that the economy shows resilience at the end of this year was good news.

So, we saw the markets doing well. We saw the unemployment rate going down and tomorrow, we're Wednesday, with the announcement of Bank of Canada. So, what do you think?

They can't lower rates. They're going to stay put. U.S. will drop rates, but not Canada. The economy is doing somewhat better, inflation’s about target, but nonetheless you can't justify reducing rates at this point in time. So, the Bank has done a good job. They were pre-emptive. They were concerned about the economy. Now they posit, Nancy, and we'll see what happens in the next few months. But for now, I think suffices to say that you remain on the sidelines.

Okay, so all of this should lead to our snowbirds being happier. Is the dollar improving so that they can go South and enjoy the sun?

Yes, snowbirds will be happy, but also people that try to have a forward view or longer-term view on Canada because I think the currency is less susceptible to a decline given the macro backdrop, but also what the federal government has deployed in recent weeks in terms of budgets. But also, you know the Memorandum of Understanding with the U.S. The Alberta sorry. So Canadian dollar has gained 3 cents. So yes, if you travel overseas or to the U.S., you have a somewhat stronger Canadian dollar and that's good news because that helps maintain their standards of living.

Absolutely. And with all this, I mean we can create our own jobs and our own companies, but to increase our productivity, we also need to have foreign dollars coming to Canada, and I don't think that's a good number yet, right?

No, and you're right, that's why I want to be prudent for 2026 to sustain the job growth that we've been speaking to into next year. I need to bring investment back to Canada. So, we had two good positive quarters, but then we're back into negative territory. And notice Nancy, you know, we haven't been able to attract investment in this country for the past decade. So, hopefully what the federal government has done with the agreement with Alberta, there's a perception now that the energy sector is no longer stranded. So, you can come to Canada, invest, build factories, and have access to energy. If you want to do data centres, you can use natural gas to supply your data centres. So, that is a possibility that you bring foreign direct investment. So, the policies that have been deployed are structuring, but I need to confirm them. You're absolutely right to maintain a strong bid on my labour markets in 2026. Can't do it without business investment. You're absolutely right. We need to see that in 2026.

Absolutely. And what about our neighbors from the South? How are they feeling?

I don't know if they're disappointed because of what's happening to Canada, but their consumer confidence in the doldrums. Maybe there's some jealousy here.

That's surprising.

Yeah. So, it reflects frustration because whether or not the politicians will admit to it or not, if you impose a tariff structure of roughly 15% on your imports, which is what the U.S. is doing right now, it's showing up on inflation. And the U.S. household sector doesn't have access to the generosity of the social safety net that we have in Canada, so every bit of inflation bites even more, right? So, yes, quite the frustration. Lowest consumer confidence since COVID. So, I'm sure the U.S. president is looking at this saying "Well, you know that's not sustainable. Maybe I need to reframe my tariff structure in 2026, it could give me some little bit of appeasement on the CPI.".

And there isn't a lot of time to be able to do that because midterm is November.

That's why you might say that in midterm election year, the White House will do everything in its power to bring consumer confidence back up. And I don't think it's with higher tariffs, it's with lower inflation and lower interest rates.

Okay, so what about mortgages in the States? Well, I'm getting a little lower interest rates with the Fed again tomorrow, Nancy. Will be below 4%, but the problem is the frustration comes from the fact that the 30-year bond yield is not coming down. So, if the government bond yield doesn't come down, then the 30-year mortgage rate's not coming down. So, unlike a homeowner in Canada, in the U.S. they're not feeling the impact of monetary easing because long term rates remain very sticky on the upside.

So they have inflation and they have their mortgages payments not going down, so that's a frustration.

That explains the lack or the low level, the low reading on consumer confidence.

Absolutely. And what about government spending? What's happening in Canada, U.S.?

It's a global phenomenon, so you have to be careful what you wish for in 2026. So we've had good growth this year, but it's been supported by massive government stimulus across the planet. So, unless I deploy productivity gains in 2026, at some point you'll have to pay the piper on that one. So, for financial markets, we've had low volatility because stronger than expected economic growth, but does that come back to bite us in 2026 is the big question. So, unless I deploy productivity gains in the next few quarters, you might want to reassess the valuations on your global financial markets. So, 2025 was a spectacular year on the back of government spending. 2026 I need to deliver on productivity gains to justify these high valuations.

Productivity meaning AI, agentic AI, review of processes, investment in plants so that they can do. 

You're so right.

So much more.

You're so right. So everybody, we're seeing the investment, now does it translate into productivity. You and I will have a lot of conversations next year on that topic.

Definitely. So Stéfane, looking forward to hearing you again in 2026 to see what it will bring to us. I want to thank you for taking the time to listen to this little time with Stéfane and I want to wish you a happy season. Take the time to rest. It's two weeks where you can spend time with family and friends. So, looking forward to seeing you again in January. Thank you, Stéfane.

Thank you.

Hello everyone, welcome to Economic Impact. Today we are November 12, 2025, and as usual, I am with our Chief Economist, Stéfane Marion. Stéfane, once again we need to talk about, you know, Canada versus U.S., but rate cuts now.

There are so many things we want to speak to you Denis today, but let's start with the rate cuts because that's your specialty as a former head of fixed income. So yes, monetary easing cycle continued in Canada in October. 9th. It was the 9th easing rate cut since the beginning of the cycle that started in the summer of 2024. You know, we spoke last month, could there be more? The Bank of Canada was cautious on this one, Denis. It says, "I'm giving you one, but I think rates are neutral and I think I might be done for this easing cycle". So there's a considerable gap that remains with the U.S., you know, to reflect some of the challenges that we face on this side of the border. But it seems like the Bank of Canada is comfortable now saying, "Well, maybe monetary policy is where it should be".

Do you think it's unusual thinking that the rates will not go lower, considering what we see in the economy right now?

I would have thought so, like you, but the surprise in the Canadian economy over the past month, the past two months, is the uncanny resilience. So, the service sector in Canada, which is the biggest chunk of the Canadian economy, is indicating growth for the first time in nine months, right. And the manufacturing sector is still showing contraction, but nowhere near as bad as what we saw, so it seems like the Canadian economy is stabilizing with growth. It's not a boom Denis, but it's better growth than we had forecasted. So, you could justify the Bank of Canada's message based on the recent evidence that we're getting from economic reports.

And this is also what we get from the unemployment number, which was a big surprise.

All these surveys are meaningless if you can't confirm it with real data. And the real data shows that we've had some job creation to the extent that, good enough, to the extent that the unemployment rate actually edged below 7% for the first time in a few months. And more importantly, the wage inflation is growing at roughly 4%, which is above inflation. So that means that there is purchasing power at the consumer level that could help stabilize the Canadian economy, despite the fact that the export sector remains challenged.

It's quite interesting seeing that because this is not the perception we have when we're listening to the news. It's very negative compared to the results here.

You're right. And if you look at the, you know, there's been announcement that Ottawa's thinking about reducing quite significantly the size of the civil service in Ottawa. But having said this, what's happening in the private sector in Canada shows again, this resilience. So, notice in the U.S., the trend on private sector employment, this is a private survey Denis because, as you know, the government is still shut down-reopening, but it's going to take time to get the official data. But the private sector suggests this downtrend in U.S. employment growth. Canada is more volatile. So, I can't say that we have broken the trend with the U.S., but clearly in the last month we did. So again, that just speaks to some resilience in the private sector because the earnings season was better than expected on the S&P/TSX, so that would be reflected on employment. So, private sector holding up relatively well at this point in time. Again, suggesting that the BoC, the Bank of Canada, might have been justified to say, "Well, maybe we've done enough".

Now we have the reason. Ok. And now we have to talk about the budget in Canada because we spoke about it the last time. Now it's done.

Yeah, so we spoke last month. Ok, so one of the reasons the Bank Canada says, "Well, I need to pause now" is because, you know, we are getting fiscal stimulus in Canada. Maybe the budget was not as transformational as we thought it would be last month where we were arguing for $100 billion deficit, 3% of GDP. It came in that $80 billion. So, Denis, close enough to say, is it a structuring budget? I think it is because if you look at the composition of the spending for the years ahead, look at these blue bars, this is investment. This is not just spending that just goes to consumers and then that disappears in the economy through some import leakages. Absolutely not. This is a commitment to invest in the Canadian economy and to start to reindustrialize the country. So, notice that on the operating balance, you know, Ottawa says "Well, we'll be in surplus in three years from now, but we are committing roughly $280 billion to investment in the Canadian economy". So, Denis, that is structuring.

And this is how you build confidence in an economy when you see that amount of investment, which are not expenses, which down the road will produce revenue.

Yes, so, so you're going to run a 2.5% deficit as a share of GDP this year. But the commitment to skew it towards investment means that investors are unlikely to say, "Well, we don't believe in your story". They're going to say, "Ok, finally". And it's not just the spending Denis, it's also the commitment to reduce the substantial amount of regulation in this country. And also, importantly to say, maybe assets will be available for these pension funds to buy into Canada. So, in terms of, you know, positioning this budget, I would say it is structuring. So, we spoke about that last month and that was important and I think that they went in the right direction. Now there's a few things that need to be settled among which, you know, trade negotiations with the U.S. need to resume because that stopped since last time we saw each other. So. But again, it's certainly a big step in the right direction.

And that new picture to see deficit probably translates also positive on the stocks in the equity market because, we're not at a new high, but we're doing quite well.

Well, the performance this year has been stellar. I mean, more than 20%. Last time we saw that was 1993. By the way, that's the last time the Blue Jays won the World Series.

Well, we were close this year.

You were close.

Very close.

But we did more than 25% in 1993. So, we didn't win this year, but maybe, you know, more than 20% is great. So, aside from the Blue Jays, there's the fact that again, this budget is credible. And if you cut regulations for corporation, that means that you will help profitability down the road and that's more sustainable for the Canadian economy. We need to bring investment back to Canada. It's making Canada investable again. And I think on that side, the budget was important for investors. So, a lot of good news already priced in Denis. I can't promise you a repeat performance next year, but this proves that, you know, the budget was relatively well received. Now it's a matter of execution.

Yeah, exactly. And we see also that the Canadian dollar are fine, kind of. We saw the bottom, but now I think it's above $0.70. It's natural that the Canadian dollar is there.

No, you're right. And since the start of the year, we've seen, you know, Canadian dollar depreciation. Our forecast is, well, we might go to 1.42. You can see we went to 141.5, which is close enough to 142. I think you'll agree with me. Now, have we found the cruising altitude? A key condition to finding the cruising altitude for the Looney was this budget. So, the budget is credible. Now, what we're missing is, the budget was necessary, but not sufficient. Now we need to execute on bringing the regulation but also restarting these trade discussions with the Americans to provide, to have the full impact of the budget. So again, not out of the woods, but I think we're starting to find a cruising altitude. So, there might be more side for Canadian dollar appreciation in the quarters ahead.

Well, thank you Stéfane and thank you all of you. Today is my last presence on the stage. I would like to thank all the people, the investors who are listening to us and the positive comment that we get and we had. Very, very helpful to make that, you know, capsule better and better every day hopefully. I would like to thank also all the people here who make that thing happen. Spectacular team, all the technicians and the people around these stages are fantastic. And Stéphane, thank you very much for let me do that for you for the last past two years or so. It was a lot of fun, a lot of pleasure and long life to Economic Impact.

Denis if I may, I just have to thank you for the 35 years you spent at the Bank. And I would just want to say it was a privilege to work with you.

Thank you Stéfane.

Thank you very much.

Goodbye.