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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.