Hello, everyone. Welcome to Economic Impact. Today, it's June 11th,
2025 and as usual, I am with our Chief Economist, Stéfane Marion.
Hello, Stéfane, a little bit different today, a lot of structural
change and we want to talk about it.
Well, we hope to keep people interested, but you're absolutely right
that we'll mix a bunch of stuff that's cyclical versus structural,
which makes the story more interesting, I think. But let's start with
the cyclical dynamics that we've seen, we're seeing in U.S. so, well,
we've said many months ago that, maybe US corporations would start
reacting negatively to the uncertainty created by the tariff structure
in the U.S.. And what we've seen in the latest jobs report in the U.S.
is that corporations are still hiring if you look at the redline
Denis, but they're not hiring full time. So, they're not committing
their capital full time, whether it's human capital or physical
capital, not investing right now. So, it's not just Canadian
corporations that are struggling to understand the new dynamics, but
we're seeing it in the jobs report. So, this sets the stage for slower
growth in the U.S. in the second half of this year.
This is what you call uncertainty for the future. And you don't want
to have a full-time employee, you prefer to have a part-time employee
that, if things are going bad, you know, it's easier to lay off people.
You don't want to commit until you actually understand what your
business model will be like say the next six months or next year.
But the equity market is doing well, not new high, but despite of
that, you know there's good news.
So, let's put things in perspective. You're right, not doing badly
in recent weeks. It's a recovery, but U.S. stock market is one of the
only ones that's not back to its previous highs. So, there's still
this level of uncertainty created by, there's high valuation in the
U.S., we're talking about structural adjustment to the supply chain.
Companies are not committing capital right now. So, the U.S. market is
coming back, don't get me wrong, but it's one of the few markets
that's not back to an all-time high.
Yeah, but that performance is probably only linked because of U.S.
investors. Because when you look at the greenback or the U.S. dollar,
it's not doing well at all and keeps going down.
So, it's been driven by U.S. investors, the recovery, because
foreign investors, you're absolutely right, they're still shunning
U.S. assets, whether it's the U.S. bond market or U.S. equity markets.
It's not that they're not buying, but they're not buying as
aggressively. And that's clearly apparent on the exchange rate in the
U.S., which is struggling this quarter. It's one of the largest
depreciations in over five years, down 3.5%. So, it means central
banks are less active in buying U.S. assets, but also private
investors. So that's, you're absolutely right, you know, the
perception of U.S. investors versus U.S. economy explains why the U.S.
stock market has struggled so far this year.
Yeah. And if you go up north in Canada, the story is totally
different. Our stock market is at a new high right now.
Despite
the fact that we have a 7% unemployment rate now and which is a
massive difference with the U.S. at 4.2%. The stock market in Canada
is at new highs. And Denis, I think that's a reflection that everybody
understands that we are challenged cyclically right now with the
uncertainty on tariffs. But at the same time, what we understand also
is, since the federal election, the Prime Minister, well the throne
speech was actually read by King Charles. But there's a commitment
from the federal government to focus on the Canadian economy on the
scale that we haven't seen in many, many years. So, people are saying,
well, if I don't really like U.S. assets, I don't understand. I
clearly understand that the federal government in Canada wants to be
pro-growth. And that's, you know, there's, you know, there's this wind
of optimism that is blowing north of the border.
And for this time around, it's not just oil and gas that's doing
well, it's a bit widespread in the economy.
Yeah, so when we saw the stock market doing very well in 2000, it
was mostly the energy sector. But, with this commitment of the federal
government to reindustrialize the nation, that means, you know, more
corporate lending, attracting capital, we're open for business. Then
obviously, under these circumstances, you can understand that, you
know, the financials of the Canadian banks are at a new all-time high.
Having said that, it's still not a one trick pony with only the banks.
We have industrials doing well, materials, consumer discretionary.
People believe that there will be new structural policies deployed in
Canada to close the valuation gap that we've endured with the U.S. for
over a decade. So again, Denis, this is a structural change.
Understand, we are cyclically challenged. Let's be careful in the
months ahead. But structurally, there's something different happening
in Canada. That's how powerful this can be when policymakers decide to
become pro-growth.
Yeah, and the consequences of that, Canadian dollar is going higher
because now you have probably Canadian investors, but foreign
investors buying in Canada.
Well Denis, that's the flip side. I think if people are interested
in your assets, the currency will do well. So, the Canadian dollar's
appreciating about the most in four years. So, we were concerned
earlier this year about Canadian dollar depreciation. But with the
throne speech that we saw, the commitment to be pro-growth for the
Canadian economy, these are words until now, but maybe the actions
will speak for themselves in the next few quarters, but this is very
powerful and it's driving a stronger Canadian dollar. So, might be a
source of frustration for exporters, but clearly there's demand and
that's an improvement in our terms of trade right now.
And you know, on the same path, Mr. Carney says that I want to
invest more money in defense and, and that's kind of good military
expenses because you have to build the economy around that. But it's
not only building tanks, and it's helping the whole economy.
So, the commitment is to grow the economy, but at the same time to
be an active participant within NATO because right now we have the
lowest military expenditure in the G7, which means that we are
struggling as a nation. Now, the commitment to increase our military
complex is very, very important. So, to me, that speaks volumes to the
government's commitment to do so. But if you do so, and with a Buy
Canada Act, all of a sudden, I have more leeways to improve our
industrial structure.
And the next slide will show that we need to invest in our economy.
You know, you've been saying that for months and years now. And when
you compare ourselves, there's a lot to do.
Oh, Denis, you know, on manufacturing, we've been atrophying our
manufacturing so much that, you know, now for the first time ever, our
manufacturing sector is smaller than Ireland, which is a population of
5,000,000. So, we need to do a lot better there. And I think that I
can be hopeful that with this new procurement system, we can actually
kick start manufacturing, and that means reindustrializing our nation.
And you've been discussing that in the past. You know, there's so
much regulation in Canada. But once again, the next slide, you know,
speak by themself, we need to do something.
It's a big slide, but all you need to know, Denis, is that the
federal government is responsible for 320,000 regulations, in
manufacturing alone at 110,000. So, it doesn't cost much for the
federal government to show the example and say, in order to deploy
private capital in Canada, I'll make it easier. I will slash the
regulatory requirements that we have, which are one of, some of the
most punitive in the industrialized world.
And that's excluding provincials and municipalities.
No provinces, no municipalities on that. So, but if the federal
government shows the example, all of a sudden, Canada becomes more
investable. So, to me, that's a structural change that would be
extremely conducive to this growth and evaluations, the discount that
we've been dealing with for the past decade can go away. This is, you
know, structurally speaking, as I said, I mean, these are probably the
most, the best news we've had from Ottawa. If we can tackle
regulations as well as the other commitment that you have, I can only
be more optimistic for our country going forward.
Well, Stéfane, this is a change from the past few months and not
only few years about Canada, but it's the first time we were seeing
your optimism about Canada. And it seems that also, you know, the
investors and the foreign investors are, then more to come I believe.
The next challenge Denis is the upcoming G7 meeting. If Mr. Trump,
if Mr. Carney can show that he gets along with Mr. Trump and then it
looks like we can commit to a trade agreement in the next few
quarters, I think people will become even more interested in Canada.
So, you know, the words have been put out there. Now we need to see
the actions and if there's a commitment to come up with these actions
and after G7 meetings, all of these things could make us even more
positive for Canada so hopefully when we see each other later this
summer, we'll have better news for the Canadian economy. But things
look up right now despite the fact that we are cyclically challenged,
there's good news, structurally speaking.
Well, thank you very much, Stéfane. Thank you all for listening to
us and we'll see you in a few weeks. Thank you.
